Financial advice noted as ‘ripest fruit’ for regulatory reform

The Australian Law Reform Commission (ALRC) has outlined how financial advisers could be regulated under a newly reformed Corporations Act. 

In a webinar, the commission said financial advice is an area that has been identified as being ready for reform.

In its Interim Report C that was released last month, the ALRC stated changes are needed to better recognise improvements to the financial advice sector. As a result, it has included financial advice as one of three high-priority reform pillars.

The current structure and framing of provisions relating to financial advice in the Corporations Act 2001, specifically in chapter 7, made it hard for advice providers and recipients of financial advice to find the law.

Secondly, it made the law harder to understand by obscuring the broader context and purpose of financial advice provisions. This lack of context meant the law failed to communicate that advice providers are subject to a highly developed and tailored regulatory regime. 

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Nicholas Simoes da Silva, senior legal officer, said: “Consumer protection, disclosure, and financial advice, if you can reform just those three areas which we’ve prioritised as the three reform pillars, that is where you can see the big benefits.

“We’re not picking the low hanging fruit, we're trying to pick the ripest fruit, those areas that are ready for reform and where the benefits will be greatest and trying to pick those as quickly as possible to get them done.

“Parliament doesn’t have to pick the whole tree but the reform pillars help identify where we will see the biggest benefits first from any reforms of the legislative framework.”

One of the reforms was the suggested introduction of a Financial Services Law that would include chapter 7 of the Corporations Act and part 2, division 2 of the ASIC Act.

Ellie Filkin, legal officer, said: “There should be chapter dedicated to financial advice, this would be much easier to navigate and include provisions that only apply to financial advice. It also better reflects the existance of a tailored regulatory regime for financial advisers which treats it as a different profession to other financial services.”

Simeos da Silva also referenced how changes that are due to come into force — such as the Quality of Advice Review — would affect the ALRC’s work.

“Financial advice is an obvious example, if the government commits to substantive policy change then the legislative amendments needed to implement those would also be used to undertake reforms proposed by the ALRC such as the creation of a new financial advice chapter and consideration being given to reallocation of material between primary and delegated legislation,” Da Silva said.

“We think new policy initiatives are not an obstacle for reform but offer a vehicle for implementing them over time and for combining them with other relevant priorities.”

The changes proposed in the ALRC’s six reform pillars will be implemented in a staged manner if they proceed, he said.

“We haven’t suggested a Big Bang, we’ve suggested looking at them one at a time leaving sufficient room for consultation and transition period prior to their commencement. This allows government to choose which they want to pursue and not commit to all of them at once,” Da Silva said.