4. Scope of inquiry

The ToR include a number of indications regarding the intended scope of the inquiry. For example, the ToR initially request the ALRC to consider changes to the Corporations Act 2001 (Cth) and the Corporations Regulations 2001 (Cth) (but not other statutes). Under Topic A the ALRC is to consider the use of definitions in ‘corporations and financial services legislation’; Topic B does not refer to any particular legislation in relation to ‘the coherence of the regulatory design’; and Topic C is specifically restricted to Chapter 7 of the Corporations Act, the provisions of which are to be ‘reframed or restructured’.

The ALRC’s proposed approach is to treat the ToR as one overarching inquiry, rather than as three sub-inquiries on discrete topics. This will have the benefit that the consolidated final report will be able to make a set of recommendations that inter-relate and make sense as a coherent whole. In any event, the sub-topics set out in the ToR will inevitably overlap and each will have implications for the others.

One way of achieving coherence across the topics to be covered in the Interim Reports is to maintain a level of consistency in scope throughout the Inquiry. Consequently, the ALRC proposes that Chapter 7 of the Corporations Act be a focus point for each of the topics. However, issues and themes arising in other parts of corporations and financial services law will also be identified and captured. That is, the ALRC will analyse other parts of the Corporations Act, other legislation relevant to corporations and financial services, and other Commonwealth statutes, in developing its recommendations. The ALRC’s recommendations will have implications for legislative design well beyond Chapter 7 of the Corporations Act.

Topic A – Definitions and concepts

For example, in the first Interim Report for this inquiry, the ALRC will examine the use of definitions and concepts including examples from across the Corporations Act (and key related statutes), and will develop principles for appropriate use of definitions and concepts. In addition, the ALRC will look in greater detail at key definitions and concepts used in Chapter 7 of the Corporations Act, and how they might be simplified in line with the identified principles.

In commenting on the purpose of definitions in legislation, the ALRC will make proposals regarding the appropriate use of definitions that would be generally applicable in Commonwealth legislation (noting the Office of Parliamentary Counsel has published some guidance on this issue). More specifically, the ALRC proposes to analyse whether the definitions relevant to Chapter 7 of the Corporations Act are utilised for appropriate purposes. As noted above, a key criticism is that definitions are used extensively as a method of ‘switching on and off’ the various obligations contained in Chapter 7, rather than for the purpose of elucidating meaning.

  • For example, one criterion for whether a Product Disclosure Statement is required to be provided is that the client is a ‘retail client’.[3] Lengthy provisions in the Corporations Act and numerous provisions in the Corporations Regulations then define extensively when a person is considered to be a retail client, subject to numerous exceptions.[4]

In analysing the number and location of definitions, the ALRC will examine the definitions contained in Chapter 7, and throughout the Corporations Act, and investigate helpful ways of improving navigability. For example, some terms are defined in Chapter 7, although the same definition is used throughout the Corporations Act, while other terms are defined only in terms of their use in Chapter 7, but the definition appears earlier in the Corporations Act. There is a high volume of definitions spread throughout the Corporations Act, including words such as ‘on’, ‘of, ‘for, ‘expert’, ‘general law’, ‘information’, and ‘machine-copy’. The ALRC will examine whether their inclusion is justified or helpful (e.g. on the basis of judicial interpretation).

In relation to consistency in the use of definitions and concepts, the ALRC will examine options to achieve greater consistency, particularly for: (1) terms that are defined differently in different Parts of the Corporations Act (eg ‘security’); (2) terms that are defined differently in related statutes, in delegated legislation, and in other sources (eg ‘financial product’); and (3) terms and concepts that are defined or described differently in overseas legislation (particularly as financial products are increasingly becoming transnational in nature). This could contribute to the promotion of ‘robust regulatory boundaries’, as referred to in the ToR, in that definitions can act as a boundary line between different concepts that should be regulated differently.

In relation to the drafting and design of concepts, the ALRC will examine the extent to which key concepts found in Chapter 7 of the Corporations Act are expressed differently elsewhere in the Corporations Act and in related statutes. For example, Chapter 7 includes obligations on Australian Financial Service Licensees to act in their client’s best interests.[5] Similar, but differently drafted obligations apply in a number of other contexts, such as superannuation,[6] and mortgage broking.[7] Comparative analysis of the different approaches in these different statutory contexts may provide a basis for a recommended model of drafting such obligations in Chapter 7.

In examining the design and structure of definitions, the ALRC notes that some definitions in the Corporations Act and their related exceptions have been described as “labyrinthine”[8]. The Financial Services Royal Commission recommended ‘reducing the number and the area of operation of special rules, exceptions and carve outs’.[9] The ALRC will provide examples of key definitions in the Corporations Act, how they are potentially problematic, and how they could potentially be simplified, while retaining the underlying policy intent. (Acknowledging that there may not be consensus as to the underlying intent of the law.)

The ALRC also proposes to assess opportunities presented by technology to assist with the navigability of complex definitions and concepts. In addition, the ALRC would assess the extent to which regulatory language is ‘technology neutral’ in terms of not favouring any type of technology, and identify any aspects of conventional technology that may become obsolete due to technological advances.

Topic B – Regulatory design and hierarchy

The Corporations Act is heavily reliant on the operation of regulations and legislative instruments, as are some other Commonwealth statutes. Accordingly, the ALRC will examine existing provisions that delegate rule-making power, and the impact of delegated legislation on the complexity and navigability of regulation. The ALRC will make principled proposals for reform regarding the proper delegation of rule-making power. In relation to Chapter 7, the ALRC’s aim would be to propose a model under which appropriate guidance could be included transparently at each level of the regulatory hierarchy, such that users are able to identify, locate and apply the relevant rules. International comparisons with regulator powers in comparable jurisdictions will be examined and discussed, as will be the approach in other statutory frameworks in Australia.

Delegation powers: The legislative mapping work undertaken by ALRC to date demonstrates the extent to which Regulations and legislative instruments issued by regulators have been used not only to provide extra detail in relation to interpretation of the Corporations Act, but effectively to amend substantively the primary legislation. For example, Regulations may prescribe additional types of activity to be considered as ‘financial services’ for the purposes of Chapter 7, with significant implications in terms of the obligations consequentially imposed. The ALRC would recommend reforms to the use of Regulations, regulator powers, and instruments, such that users are able to more easily identify, locate and apply relevant rules.

Transparency: The ALRC proposes to examine the extent to which there is publicly available information that illustrates how instruments issued by ASIC exempt particular activities from the application of primary legislation, or otherwise amend the operation of primary legislation. The ALRC would assess options to increase transparency and accessibility of the law in this regard.

Individual exemptions: The ALRC would analyse the practice of regulators issuing to individual entities specific exemptions from particular legislative obligations, and the extent to which the process and outcome is open to scrutiny. The ALRC would assess appropriate processes for ruling on whether or not exemptions should be granted, and the terms on which exemptions are granted.

Notional provisions: Delegated legislation sometimes amends the Corporations Act by way of ‘notional provisions’. That is, the provisions of the delegated legislation say that the Corporations Act is ‘to be read as if’ a particular provision were included in the legislation, or amended in a certain way, although this is not apparent to the reader of the primary legislation. In addition, there is occasionally duplication of numbering of notional provisions, the legal effect of which is unclear.

  • For example, there is no subsection (2A) contained in the text of s 1016A of the Corporations Act. However, three different instruments (the Corporations Regulations, an ASIC Class Order, and an ASIC Legislative Instrument) each purport to insert into the Corporations Act a different notional provision designated as ‘s 1016A(2A)’. The ALRC will assess the implications of notional provisions from the perspective of navigability, transparency, and rule of law concerns.

Soft law: The ALRC will consider the appropriate role of ‘soft law’ sources, and whether more regulatory detail could be contained in soft law such as regulatory guides and industry codes, rather than in legislation.

Topic C – Restructuring or reframing the provisions of Chapter 7

This topic is clearly focused on Chapter 7 of the Corporations Act. Nevertheless, the structure and framing of Chapter 7 is clearly influenced by, and affects, other parts of the Corporations Act and related statutes. The ALRC therefore needs to ensure its proposals allow for a coherent overall legislative structure incorporating the contents of Chapter 7.

Norms, principles, and outcomes: The ALRC will seek to identify the fundamental norms of behaviour embodied within Chapter 7, and to provide examples of how the legislation could provide clearer linkages between individual rules and relevant fundamental norms as recommended by the Financial Services Royal Commission. This would incorporate an assessment of the strengths and challenges of principle-based, outcomes-based regulation (as distinct from prescriptive, rule-based regulation) in the specific context of Chapter 7.

Comparative approaches: Building on the work in Topic A on different drafting of similar concepts across different statutes, the ALRC will examine whether other comparable regimes may offer examples of how particular provisions of Chapter 7 might be expressed more simply, with greater emphasis on the fundamental norms of behaviour, to ensure the intent of the law is met.

Legislative structure: Within Chapter 7 of the Corporations Act, various Parts regulate markets for financial products, other aspects concerning financial products, and financial services. The ALRC will examine the relationship between the various Parts of Chapter 7, the rest of the Corporations Act, and other related statutes, to assess whether greater legislative simplification and clarity could be achieved by changing the legislative structure.

Technology: The ALRC proposes to consider whether technology can be utilised to assist with the navigability of regulation generally, and whether regulation could be designed in a way that would aid the use of technology in helping people to navigate regulation.

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[3] See, eg, Corporations Act 2001 (Cth) ss 1012A, 1012B, 1012C.

[4] See, eg, Corporations Act 2001 (Cth) ss 761G, 761GA; Corporations Regulations 2001 (Cth) Pt 7.1 Div 2.

[5] See Part 7.7A of the Corporations Act 2001 (Cth), commonly known as the ‘FOFA reforms’.

[6] See, eg, Superannuation Industry (Supervision) Act 1993 (Cth) s 52(2).

[7] National Consumer Credit Protection Act 2009 (Cth) ss 158LA, 158LE.

[8] Australian Securities and Investments Commission v Westpac Banking Corporation [2019] FCA 2147, [7].

[9] Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, Final Report, Volume 1, 16.