Dr William Isdale and Christopher Ash
If Australia’s corporations and financial services statutes were likened to a house, it would be a large and disordered one. A house in which new annexes have been added with little thought to overall design, and in which objects are scattered and hidden, with little regard to how they may be found in the future. In short, a house that is thoroughly disordered. A house that needs re-design and serious tidying.
Today, the ALRC launches Interim Report B as part of its Review of the Legislative Framework for Corporations and Financial Services Regulation. The report focuses on the role of legislative design and hierarchy in ensuring that the law is coherent and navigable, while remaining flexible enough to meet future needs. If implemented, the proposals would ensure that relevant legislation adopts a more rational and navigable architecture — so that our house of law remains habitable into the future. The key focus of some proposals is Chapter 7 of the Corporations Act (concerning financial services), but many of the proposals could be applied more broadly, and others are general in nature.
Stakeholders are invited to provide feedback on the proposals and questions in Interim Report B by 30 November 2022.
The current problem
Over several decades, corporations and financial services legislation has developed in an ad hoc manner. Amendments spurred by crises, and schemes underpinned by differing approaches to regulation (from the pithy and principled to the painfully prescriptive), have slowly accumulated. The law as it stands today is the work of many architects, each following different plans.
Unfortunately, this history means that the law today does not reflect any single design philosophy. It is disorganised, unwieldy, incoherent, and difficult to navigate (let alone comprehend). For example, core obligations are currently scattered across different layers of the legislative hierarchy – the Act, regulations, and other legislative instruments. Little-known regulations or instruments sometimes provide for hefty terms of imprisonment, but are difficult to find or understand. The Act itself, far from covering only core principles, is stuffed full of prescriptive minutiae (including more than 96,000 words on the topic of disclosure alone).
As a result, the current law is unnecessarily complex, undermining the likelihood that its substance and intent will be understood and followed. As the ALRC has previously observed:
Complexity matters because it makes the law difficult to understand. In turn, this makes it harder for consumers and their advocates to know their rights and be able to exercise them; for practitioners to be able to advise their clients confidently; for regulated entities to know how to comply with the law; and for regulators to enforce the law.
In the ALRC’s view, the introduction of a more rational legislative design and hierarchy is key to resolving much of the byzantine complexity that currently afflicts corporations and financial services law. While fixing this problem will be no small task, it can be undertaken in a staged approach — one room at a time. Without change, the law is on track for even greater complexity and incomprehensibility. It is time to put our house in order.
What goes where (and why)
Everyone knows that rooms should serve a purpose, and that it doesn’t make sense to put the stovetop in the bathroom or the bathtub in the kitchen. In other words, a plan as to what goes where, and why, is essential in matters of design. The ALRC proposes such a plan for key financial services legislation, in which the law would be located in:
- the Act;
- a Scoping Order; and
- thematically consolidated rules.
Just as different tradespeople work together to produce a structurally sound house, the ALRC’s model ensures that multiple law-makers — Parliament, the Minister, and ASIC — use the right tools to produce coherent and navigable laws.
Under the ALRC’s proposed model, Parliament would continue to set the core policy of the regulatory regime in the Corporations Act. The Act should establish the broad parameters and key objectives of regulation, providing a clear picture of what the law requires in broad outline. To maintain transparency and democratic legitimacy, all significant criminal offences and civil penalties should be in the Act. By principally containing matters of core policy and principle, the Act would be flexible enough to meet the needs of new situations (supplemented with detail provided by the other layers of the hierarchy). The Act should not be filled with prescriptive detail, as it currently is.
A Scoping Order would contain the vast majority of exclusions and exemptions from the Act, and other detail that helps to set the Act’s scope. Currently, exclusions and exemptions are spread across numerous locations, and are often expressed in tediously intricate ways. For example, hundreds of legislative instruments create bespoke laws for certain entities by ‘notionally amending’ the Corporations Act. The resulting labyrinth — and the onerous expectation it places on readers to ‘piece together’ the law — is inconsistent with the rule of law ideal that the law should be accessible and knowable. In comparison, a Scoping Order would provide a single and clearly identifiable ‘home’ for exclusions, exemptions, and other detail defining the Act’s scope.
Finally, to the extent further prescriptive detail may be necessary, it can be provided by rules in thematically consolidated legislative instruments — or ‘rulebooks’. Rulebooks would be readily adaptable to meet the needs of changing circumstances, and organised by topic to ensure navigability. Rules would contain prescriptive detail that is consistent with, and controlled by, the overarching principles in the Act. For example, the Act would contain a core obligation to provide appropriate disclosure before issuing certain products, while a disclosure rulebook may descend to the level of page length, presentation, and other specifics. Rulebooks organised by theme would reduce the number of places a person needs to look to find the law.
As experience teaches, it is easier to find things if they are put where you expect to find them. Shoes are best placed on a shoe-rack and keys put in a drawer. Frequently used appliances are best located on a bench, with crockery and utensils stored in drawers organised by theme or function. The ALRC’s proposed legislative model aims to bring a similar logic to financial services legislation.
Putting (and keeping) things in order
The ALRC’s legislative design proposals are complemented by a range of measures designed to put, and keep, our law in proper order. Broadly, these relate to:
- how the legislative hierarchy should be used (including processes for the making of delegated legislation); and
- the need for a more general tidying-up of legislation, including through fixing mistakes and infelicities, and removing redundant provisions.
These measures reflect the desirability of legislative stewardship, in which there is a long-term focus on the care and maintenance of the law.
Making better use of the legislative hierarchy
In the ALRC’s proposed model, delegated legislation adds flesh to the bones of the core regulatory regime. Delegated law-making is both necessary and beneficial, but may lack the same level of democratic accountability as laws enacted by Parliament. Given the ever-increasing volume and significance of delegated law-making, it should be guided by sound principles and subject to appropriate review.
The ALRC proposes that consolidated and improved guidance on using the legislative hierarchy would help legislative designers create better legislation. Draft guidance developed by the ALRC would, if implemented, help lawmakers determine ‘what goes where’, and how powers to create delegated legislation should be expressed. Further, the ALRC has suggested improvements to the processes for making delegated legislation — for example, requiring consultation with an expert Advisory Committee to promote its quality and appropriateness; and requiring periodic sunsetting, to help ensure it remains fit for purpose.
Tidying-up the existing stock of legislation
The existing stock of corporations and financial services legislation needs substantial tidying-up. Over time, countless errors and infelicities have crept in. For example, the ALRC has identified over 100 spent provisions and cross-references to repealed provisions. Other examples include two sections numbered 5C.2 (in Part 5C of Sch 10A of the Corporations Act), and multiple references to disclosure for ‘managed investment schemes’ in Ch 6D of the Corporations Act, despite the removal of such schemes from that chapter in 2004. Existing processes for repealing redundant provisions, or for engaging in other forms of legislative ‘tidying-up’, are not keeping pace with legislative change. As Simoes da Silva and Isdale have observed, this is a house of law in which:
Lawyers are understandably scared of opening the cupboards. Things will fall out, or be near impossible to find. We have stuffed things in every nook and cranny for years, only rarely bothering to clean our house out.
The ALRC proposes a program of tidying-up that includes the identification and repeal of spent transitional provisions and instruments, redundant definitions, references to repealed provisions, and redundant regulation-making powers. Further, there is a need to fix unclear and incorrect provisions, and various outdated notes and references. These steps should be accompanied by measures designed to prevent the accumulation of such provisions in the future.
Perhaps most importantly, there is a need to make our law simpler. A key step to achieving this would be the removal of ‘notional amendments’ as a form of law-making — which the ALRC’s proposed legislative model seeks to achieve — and the transposition of notional amendments into textual amendments where possible. Currently, over 1,200 distinct notional amendments affect more than 600 provisions in the Corporations Act and Corporations Regulations. Instruments containing notional amendments make changes to the law without those changes being visible on the face of the legislation. Piecing together this puzzle is an enormous challenge and cost for business, legal professionals, and other users of legislation.
The ALRC’s latest report makes the case that Australia’s corporations and financial services legislation would benefit from a consistent design and hierarchy, and from substantial tidying-up. In short, that we might embrace a bit more minimalism, relocate some of our clutter, and throw out the broken toys and scattered pizza boxes. If implemented, the ALRC’s proposals would make our house of law much more inviting, for all those required to visit.