Web of definitions weighing on financial services law: ALRC

The government agency Australian Law Reform Commission (ALRC) launched a review of corporate and financial services legislation last year, after arguing that the Corporations Act and the Corporations Regulations were unnecessarily complex.

The ALRC has taken a comprehensive approach in its examination of the ecosystem of financial services legislation – examining Corporations Actthe ASIC Law and the National Consumer Credit Protection Act (NCCP).

The body had sought industry input earlier this year, with the Mortgage and Finance Association of Australia (MFAA) and the Finance Brokers Association of Australia (FBAA) both explaining the challenges for brokers regarding current laws in written memoirs.

“The mortgage and financial brokerage industry has seen many years of intense reform, implementing several key regulatory reform programs during the global COVID-19 pandemic while continuing to help consumers and businesses access critical financing. “, says the MFAA submission.

“While these regulatory reform programs are, in our view, ultimately delivering good results for customers, as identified by the ALRC, there is a significant opportunity to simplify and modernize what we see as a framework unnecessarily complex, redundant and often impenetrable legislation.

In a webinar on Friday, June 17, ALRC General Counsel Matt Corrigan, Senior Legal Officers Phoebe Tapley and William Isdale, and University of Western Australia Private Law and Business Regulation Professor Elise Bant, spoke about the industry feedback the review had received.

Russian doll definitions

One of the main thorns in the side of stakeholders was the use of scattered definitions in the laws.

As Ms. Tapley explained, the ALRC had found that there were multiple issues, such as definitions being interconnected – meaning that understanding one definition of a term could force a reader to consider the definition of another term, which required knowledge of another term and so on.

“Understanding a term is a bit like unboxing a bunch of nesting dolls,” she said.

Financial product, financial service and credit were three such terms that had interconnected definitions in laws – which could affect how companies understand what is or is not outside the regulatory parameters.

The ALRC proposed that definitions be consistent across different statutes and that interconnected terms be used sparingly.

The majority of stakeholders supported this call, particularly for a consistent definition of credit, but some noted that care should be taken to avoid unintended consequences of applying definitions too broadly.

The FBAA and MFAA, in particular, have both supported consistent definitions of credit across legislation.

As such, the FBAA pointed to the problems with including credit in the definition of financial product under the ASIC Lawwhile the Corporations ActThe definition of a financial product excludes credit.

He referred to the AFCA relying on the ASIC Law definition to make decisions against trade credit entities, even if their products are not covered by the NCCP Act and that there are no prescriptive record keeping, capacity assessment or specific disclosure requirements.

“We have seen firsthand how the inclusion of credit in the definition of financial product under the ASIC Act has created inconsistencies with policymakers and at EDR [external dispute resolutions]“said the FBAA submission.

“More laws do not necessarily mean better laws”

Dr. Bant also explained that when concepts are left undefined, there is “significant opportunity for the courts to really look at the nature of the obligation or prohibition that is the subject of the investigation “.

Deceptive conduct is one such term that is not defined, which has forced the courts to refer to the surrounding statutory common law, context and legal landscape.

Otherwise, if a term has very specific definitions that may differ from act to act, the law will “fracture”, warned Dr Bant.

“You’ll have a whole bunch of bans that look a bit similar but are worded slightly differently,” she said.

“A different language is supposed to indicate different meanings. So you have courts dealing with ever-increasing complexity and you have the ability to dispute and arbitrate between different provisions because of that complexity and inconsistency.

The problem with the increased complexity and opacity of laws, she added, is that they can encourage companies to “take legalistic and even opportunistic approaches to their obligations”, as well as approaches to litigation that waste time and resources.

“In a similar theme, the ALRC’s investigation into corporate criminal liability found that the profusion of statutory corporate attribution rules has not helped hold corporations accountable for knowledge, willful dishonesty and misconduct. ‘other highly culpable faults,’ she said.

“So again, the key theme here, which really runs through these investigations, but also through the current investigation, is that more law is not necessarily better law, less could be more.”

There had been 56 stakeholder submissions, which included calls for the ALRC to also consider ASIC guidelines, consumer outcomes and regulatory burden costs for businesses.

The ALRC also met with 130 consultants.

The ALRC is due to publish a second interim report of the review in September, ahead of a third next year.

It plans to publish a final report, with its recommendations for legislative reforms next year.

[Related: 9/10 Australians confident brokers have best interests at heart]

Web of definitions weighing on financial services law: ALRC

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Last update: June 17, 2022

Posted: June 20, 2022

Sarah Simkins

Sarah Simkins


Sarah Simpkins is the managing editor of Mortgage Business and The Adviser.