Many submissions responding to the Interim Report supported simplification of financial services laws. Industry, community groups and regulators agreed the current law is too complex. The effect of legal complexity on each of these groups differs. What would be achieved by simplifying the law?
As is apparent from what is said elsewhere in this Report, the first way to simplify the law, and the first reason for doing it, is to reduce the number of exceptions to otherwise generally applicable norms of conduct. That doing this would simplify the law is self‑evident. But doing it will also result in the wider application of the principles that underpin the general rules on which these exceptions have been grafted.
So, eliminating exceptions and qualifications is the first step towards a simpler and more readily understood body of law.
The second step is connected to the first. It is to identify expressly what fundamental norms of behaviour are being pursued when particular and detailed rules are made about a given subject. Hence, to take one example, the detailed rules about conflicts of interest and conflicted remuneration should be expressly identified as giving effect to the principle that when a person acts for another, the person must act in the best interests of that other. Obviously, including such a statement of objects is useful in resolving any dispute about how the detailed rules should be construed. And, as I have explained elsewhere, a further consequence of identifying the basic norms to which the detailed rules are intended to give effect, would be that any continued exceptions and carve outs would stand in sharp relief.
Beyond these steps, the task of simplification grows harder and will take much longer. But it is harder, and will take longer, because the law is now spread over so many different Acts and is as complex as it is. That is, the very size of the task shows why it must be tackled.
There would inevitably be many questions about legislative design. I deal with only one.
The basic norms of behaviour I have identified are simply stated. They are the fundamental precepts. And statutes have often given legislative expression to fundamental precepts with little textual elaboration. Statutory provisions about misleading or deceptive conduct are the most recent example. But reference could also be made to the sale of goods legislation provisions about fitness for purpose and merchantable quality.
Debate about legislative design may be diverted into disputes about the competing attractions of ‘principles-based’ or ‘outcomes-based’ laws and ‘rules‑based’ laws. But debates of that kind will not assist if the debate falls into disputes about definitions.
As Treasury pointed out, ‘[p]rinciples-based regulation requires a commitment from policy-makers to the regulatory architecture.’ Legislative schemes have commenced with principles at the fore only to have the full suite of prescriptions such as those described here grafted on over time.
Lobbying for prescription, detail and tailoring has been a significant contributor to the current state of the law. Requests for greater certainty may be justified and often this can be achieved by regulations or other legislative or regulatory instruments rather than amendment to the principal Act. But sometimes the requests for prescription and detail seek to shift responsibility from the regulated to the regulator, by urging the creation of ‘safe-harbour’ provisions that leave the regulated entity with little more than a box‑ticking task.
Simplification will not be easy. Like any statutory drafting, the first requirement will be to settle upon the principle or principles to which the law is to give effect. Only then can the detailed drafting begin. This drafting must then yield certainty of application and meaning. But often, those aims of certainty of application and meaning will be missed if the drafting seeks to deal with every kind of case imaginable and put each beyond dispute. So many wires are strung between the fence posts that they inevitably overlap, intersect and leave gaps. And, instead of entities meeting the intent of the law, they meet the terms in which it is expressed.
Implementing the recommendations I have made in this Report will effect some simplification of the law. Implementing them may provide some opportunities for further simplification. If those opportunities are there, they should be seized. But the overall task is, I think, much wider. It will require examination of how the existing law fits together and identification of the policies given effect by the law’s various provisions. Only once this detailed work is done can decisions be made about how those policies can be given better and simpler legislative effect. Implementing the recommendations I have made cannot wait for that larger task to begin, let alone end.
Recommendation 7.3 – Exceptions and qualifications
As far as possible, exceptions and qualifications to generally applicable norms of conduct in legislation governing financial services entities should be eliminated.
Recommendation 7.4 – Fundamental norms
As far as possible, legislation governing financial services entities should identify expressly what fundamental norms of behaviour are being pursued when particular and detailed rules are made about a particular subject matter.
See, eg, ANZ, Interim Report Submission, 34 ; CBA, Interim Report Submission, 47 [260(a)]; NAB, Interim Report Submission, 37 ; AMP, Interim Report Submission, 6 ; ABA, Interim Report Submission, 44; AFIA, Interim Report Submission, Annex 2, 4; ASIC, Interim Report Submission, 21 .
Julia Black, ‘Principles Based Regulation: Risks, Challenges and Opportunities’ (Speech delivered at The Banco Court, Supreme Court of New South Wales, 27 March 2007) 3, 7–8.
Treasury, Interim Report Submission, 7 .
Treasury, Interim Report Submission, 5 . See also ASIC, Interim Report Submission, 22–3 .
 Treasury, Interim Report Submission, 5 –.