Govt must stop outsourcing policy detail to the regulators

Both financial advisers and superannuation fund trustees should be rightly concerned at the manner in which the Government is adopting an arguably lazy and loose-ended approach to the implementation of key legislation.

Where both the Your Future, Your Super legislation and the Hayne Royal Commission bills are concerned, the Government has taken the approach of laying down a broad legislative framework while allowing the regulators – the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) – to fill in the regulatory gaps.

In circumstances where recent events have raised questions about the appropriateness of regulators becoming policymakers this approach is simply not good enough and, in large measure, disrespects the financial services industry while leaving those operating on the frontline both confused and distrustful.

In the financial planning arena, a classic case of the Government producing a legislative outline and letting the regulator fill in the detail is the so-called Haynes No 2 Bill – the Financial Sector Reform (Hayne Royal Commission Response No. 2) Bill 2020 dealing with the key question of ongoing advice fees.

Any comparison of the bill’s explanatory memorandum and the approach being outlined to advisers by ASIC suggests that the regulator’s interpretation of the legislation’s intentions certainly errs on the tough side to a degree where some advisers are suggesting that it pushes them towards one-off fees and away from ongoing advice fees.
Similarly, the manner in which the Government has approach the Your Future, Your Super legislation leaves far too much discretion to the regulators around the so-called best financial interest duty and the reversal of the burden of proof.

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As University of NSW Business School professor of commercial law and regulation, Dr Pamela Hanrahan, last week told an industry forum there is a modicum of political cynicism in the Government’s approach of leaving the details of legislation to the creation of regulations.

“This gives the government of the day the power to make the law, subject only to regulations being ‘disallowed’ later by Parliament,” she said. “As we saw in 2014 with the financial advice best interest laws, this can be a very messy process. The timelines make it very difficult for people affected by the legislation to provide meaningful input and for government to quantify in advance the likely financial and other impacts of the changes.”

Hanrahan said it was to be hoped that the Law Reform Commission would be paying close attention to how governments used regulations as part of its broader work on simplifying the corporations legislation.

With legislation the devil is almost always in the detail and the bottom line, of course, is that it is hard to conclude other than that the Government’s approach of legislating and leaving the detail to the regulators is entirely politically expedient.

Of course, the approach also carries political dangers in a Parliament in which the Government’s majority is sitting on a knife-edge. Financial advisers will well remember how the regulatory approach to Future of Financial Advice changes hit the rocks because of those sitting on the cross-benches in the Senate.

The bottom line, however, is that the financial services industry and its health is too important to the broader Australian economy to be mucked around by political expediency translating into sloppy and insufficiently detailed legislation.