CPD: Bigger than Hayne? The ALRC Review and what it means for financial advisers


The background, scope and practical implications of the Hayne Royal Commission is of the biggest reform projects in decades.

The forgotten reform?

Of all the regulatory reform implemented or in development – and let’s face it there has been a lot – one that seems to have slipped under the radar of many advisers is the Australian Law Reform Commission (ALRC) Review into the simplification of corporations and financial services regulation. Which is surprising, because – in terms of its potential to reshape the financial advice and consumer protection landscape – this review could actually trump every reform in recent memory, including the Hayne Royal Commission.

It’s unclear whether this lack of profile amongst the adviser community is due to the overload of recent reforms, the three-year time frame, or simply the sheer impenetrability of a review which seems highly technical in nature. Regardless, with the Commission having already issued its first report – the second is due in September 2022 – there has never been a better time for advisers to understand the background, scope, and potential implications of one of the biggest legislative reform projects in decades.

The problem

Advisers don’t need to be told how complex financial services legislation is – they live with the outcomes of this complexity every day, dealing with a ‘gordian knot’ of legislation which ultimately sees their services become more expensive and less consumer friendly.

But even advisers may be shocked at just how much complexity exists.

The Corporations Act – the underlying legislation pertaining to financial products and financial advice – weighs in just shy of 4,000 pages.

But it gets worse.

Within these pages there are over 1,000 unique defined terms[1], nearly 600 of which are defined more than once, providing different meanings for different parts of the Act.

Consistency be damned!

Added to this lack of consistency is a lack of clear identification of when defined terms are used, or a single place they can be located (resulting in around over 14,000 internal cross references!).

Many definitions contain defined terms themselves, creating chains of interconnected definitions.

On top of which, people using the Act may need to also consult the Regulations accompanying the Act (1300 pages long), and literally hundreds of ASIC Legislative instruments, Regulatory Guides, and Information Statements[2].

In addition to these ‘functional’ problems there are also higher level ‘philosophical’ issues at play.

Firstly, over time, a number of exemptions and carve outs have been applied which are seen to encourage ‘legislative arbitrage’. (Buy Now Pay Later and payday lending providers are regularly singled out for such exploitation of loopholes.)

Second is the problem of ‘secret’ or hidden legislation, as identified by ALRC President, Hon. Justice Sarah Derrington:

“There is also a large mass of ‘secret’ law, contained in legislative instruments made by bodies like ASIC, which unsophisticated users of the legislation struggle to find. This makes finding the law and applying it particularly burdensome for unsophisticated or less well-resourced users.”[3]

And thirdly, the legislation is seen as largely rule based rather than principles based, making it hard for the legislation to remain fit for purpose in a world where the risks facing consumers are evolving rapidly (the use of technology, the increasing participation in equity markets and the emergence of crypto assets being obvious examples).

Principles-based versus rules-based (why Wagyu and Shiraz are so important)

Principles based legislation is based on general rules that articulate outcomes to be achieved by those bodies governed by that legislation. Rather than prescribing processes or actions firms must take, a principles-based approach articulates the outcomes those firms are required to achieve, leaving the firm to find the most efficient way of achieving that outcome.

(The Westpac v ASIC ‘Wagyu and Shiraz’ case[4] – where the court ruled that Westpac were free to decide their own credit application processes – is a pertinent example). In essence the court ruled that a principles-based approach should be taken.

A major advantage of a principles-based approach – and conversely the main problem with a rules-based approach – relates to flexibility.

General principles can be more easily applied to new and changing situations, whereas detailed process level prescriptive law can more easily become unfit for purpose in the face of rapid change.

About the Review

The catalyst for the ALRC review was the Hayne Royal Commission, which recognised that the complexity of financial services legislation was a contributing factor to some of the sector’s failings.

In late 2020, then Attorney General Christian Porter[5] commissioned the ALRC to investigate and make recommendations around simplifying and rationalising the Corporations Act 2001 (Cth) and the Corporations Regulations 2001 (Cth), asking them to focus and provide interim reports on three specific areas:

  1. Design and use of definitions:  Including: the use of definitions, the circumstances in which it is appropriate for concepts to be defined, the appropriate design of legislative definitions, and the consistent use of terminology to reflect the same or similar concepts.
  2. Legislative design and hierarchy: Including: the coherence of the regulatory design and hierarchy of laws, and how best to maintain regulatory flexibility to clarify technical detail and address atypical or unforeseen circumstances and unintended consequences of regulatory arrangements.
  3. Reframing of Chapter 7: Including: a review of how the provisions contained in Chapter 7 of the Corporations Act 2001 (Cth) and the Corporations Regulations 2001 (Cth) could be reframed or restructured so that the legislative framework for financial services licensing and regulation is clearer, coherent, and effective and ensures that the intent of the law is met.

The Hayne connection remains strong

Strengthening the Hayne connection further, Kenneth Hayne is one of 11 members of the ALRC’s advisory committee[6], and the ALRC have been specifically directed to review the final report of the Royal Commission he oversaw.

The timeline for the Review

The Review process and timeline is structured around a series of interim reports on each of the 3 specific areas of investigation[7]:

  • 30 November 2021 – Interim Report on Question 1 (use of definitions)
  • 30 September 2022 – Interim Report on Question 2 (coherence of regulatory design)
  • 25 August 2023 – Interim Report on Question 3 (Structure of Chapter 7), and
  • 23 November 2023 – Final Report.

What did the first Interim Report contain?

The first Interim Report contained 13 highly technical recommendations[8], and 24 further proposals and questions on which it sought further feedback from further stakeholders (that feedback process closed in February 2022).

Proposed reforms included:

  • decoupling the concepts of ‘personal advice’ and ‘financial service’
  • removing the defined term ‘financial product advice’
  • improving clarity in conveying the subject of regulation by renaming the concepts of ‘general advice’ and ‘personal advice’, and
  • simplifying the structure of exemptions for ‘financial product advice’.

The report also questioned whether the definition of retail client should be amended to:

  • achieve greater consistency with the fundamental policy settings, and
  • simplify the application of the definition of retail client to general insurance products, superannuation products, retirement savings account (RSA) products, and traditional trustee company services, or
  • otherwise achieve greater clarity and coherence.

What does this mean in a practical sense?

At a high level, the commission formed a view that financial advice has outgrown its current regulatory home. This is because there a number of provisions that apply to financial advice that don’t apply to other financial services (including concepts such as the SOA, Best Interests Duty, and other advice-specific aspects.

But there are other potential implications too, clues to which can be found within the proposals and questions, including:

  • individual licensing of financial advisers
  • clarifying the regulatory perimeters of personal advice and general advice
  • renaming terms including general advice (the Report proposing the term ‘general advice’ be replaced “with a term that corresponds intuitively with the substance of the definition”
  • changes to the definitions of retail investor and sophisticated investor in an advice context
  • changes in the treatment of business customers in a general insurance context.

Even ahead of the subsequent interim and final reports, a number of other potential outcomes are being canvassed:

  • scrapping the ‘safe harbour provisions’ under the move to a more principle-based system (and away from ‘tick a box’ compliance), and
  • the removal of Chapter 7 from the Corporations Act altogether (more on this below).

What does the industry think?

The support for legislative simplification has – as expected – been universal, and the commission received submissions from across the industry.

The FPA was one of those bodies to make a submission. Amongst the areas covered in their broad ranging submission was the call for a review of the terms ‘financial adviser’ and ‘financial planner’, as well as ‘financial coach’, ‘financial mentor’ and ‘financial guru’ to determine if restrictions on the use of those terms are effectively protecting consumers from unqualified financial advice[9] (particularly pertinent in the context of the whole finfluencer debate).

However, views on specific individual proposals included in the first Interim Report have been varied. One of the most contentious has been the possible move to a system of individual licensing for advisers.

Whilst the FPA, accounting bodies and various consumer groups support a system of individual licensing – where the ultimate onus for the quality of advice rests with the individual adviser providing it, rather than the licensee – there have been vocal critics, including the body representing stockbrokers, the SIAA, who believe that making any misconduct the sole responsibility of the individual, and not the AFSL, would remove any incentive “for others to support a culture promoting ethical and law-abiding practices”. Furthermore, they believe complications may arise relating to the availability of Professional Indemnity Insurance[10].

The General Insurance sector has also raised concerns about any changes to the retail client definition.

The Insurance Council of Australia (ICA) says current wordings specifically consider different types of policies that are sold to consumers and small businesses and the flagged streamlining could lead to a “significant and inappropriate expansion” of the retail definition reach[11].

The ICA fears that the imposition of retail client protections on business customers could be obstructive, and “would have a significant impact on the products, their distribution and associated costs”.

What’s the big deal about Chapter 7?

A quick search of the media coverage of the review reveals a lot of discussion about the potential removal of ‘Chapter 7’. Indeed, it’s a question deemed worthy of its own Interim Report (due in 2023). And it’s easy to understand why.

Chapter 7 of the Corporations Act relates solely to financial service and markets, and even in the context of a 4,000-page Act – it is a beast in its own right.

In fact, if Chapter 7 were its own Act, it would be the eleventh or twelfth largest Act of the entire Commonwealth Parliament, according to ALRC legal officer Nicholas Simoes da Silva[12].

(Da Silva also explained that if part 7.9 of chapter seven was a chapter by itself, it would be the fifth largest chapter of the Act.)

Understandably, the ALRC has put the removal of Chapter 7 from the Corporations Act, and the creation of its own standalone statute, firmly on the table.

And in addition to the obvious simplification benefits, this would have major consumer protection ramifications too, providing a clear line of demarcation between the lifecycle of companies and consumer protections.

According to Hon. Justice Derrington, this would be by having the Corporations Act as essentially a closed Act dealing with company regulation, from the birth to death of companies, and having the items in Chapter 7 – which are largely the consumer protection obligations relating to financial services and products – in their own self-contained piece of legislation.

“It’s a question of signalling the primary legislation for consumer protection,” she said.

“You still have regulations and standards that will sit underneath that, but its purpose will be clear, and it gives us a better chance to put the objects and principles and values by which we want to regulate financial advisers front and centre of the new piece of legislation.”[13]

Where to from here?

Even though the final report of the ALRC review is not due until the end of 2023, there is still plenty to drop on the legislative front during 2022.

The second Interim Report of the review – covering legislative design and hierarchy – is due by the end of September.

Additionally, there are two more developments to consider.

The first being the Quality of Advice (QOA) Review, which is being run in parallel to the ALRC and has prompted concerns about duplication and overlap. The consensus view is that, despite its name, the Michelle Levy led QOA Review is likely to focus more on the vexed issue of advice accessibility. To the extent that improving accessibility rests partly on the removal of red tape and associated costs, there is an obvious interdependency on the ALRC’s work, and in this sense the timing does seem strange (the final ALRC report not being due until 12 months after the QOA releases its recommendations). As you would expect, the teams running the reviews are working quite closely with each other.

The second, and perhaps most important development, however, is that the government responsible for enacting the recommendations of both reviews is of a new political persuasion.

For many years, the ALP has been viewed as ‘less friendly’ to the financial advice sector, and more likely to take a hard line around regulation. But it seems even they have realised the consequences of legislative overreach and too much emphasis on disclosure has ultimately led to advice becoming too expensive and too hard to access for the average person.

Time will tell on that front.

As for the end goal of a complete tearing up and rewriting of financial services legislation, well, don’t hold your breath. In 1993 a taskforce was entrusted with the ‘Tax Law Improvement Project’ to rewrite the 1936 Income Tax Assessment Act. It was originally scheduled for three years but remains incomplete – nearly 30 years later.

In other words, any rewrite could take a while.


For now, the regulatory framework which underpins our system of financial consumer protection remains unchanged, and advisers must continue to operate within existing guidelines and processes.

Whilst there is hope that the Quality of Advice Review will be the catalyst for removing at least some red tape from financial advice processes, the more fundamental and impactful changes are likely to come as a result of the complete overhaul of the Corporations Act generally, and financial services law specifically. To the extent that a simpler, principles-based system will ultimately make financial services law easier to understand and comply with, the access and affordability of financial advice should improve immeasurably, and consumers will, in turn become more informed and better protected.



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[1] https://www.qlsproctor.com.au/2021/12/cutting-back-the-thicket-of-corporations-and-financial-services-law/
[2] Ibid.
[3] https://www.afr.com/companies/financial-services/secret-laws-confuse-business-law-reform-commission-chief-20211110-p597vu
[4] https://www.afr.com/companies/financial-services/asic-drops-wagyu-and-shiraz-case-20200722-p55ecu
[5] https://www.alrc.gov.au/inquiry/corporate-crime/
[6] https://www.afr.com/companies/financial-services/unfinished-business-hayne-s-call-for-simpler-corporate-laws-20220304-p5a1p6
[7] https://www.mackaychapman.com.au/post/financial-services-laws-under-review-for-simplification
[8] https://www.alrc.gov.au/news/financial-services-legislation-interim-report-a-released/
[9] https://www.professionalplanner.com.au/2022/03/ditch-afsls-for-advisers-fpa/
[10] https://www.professionalplanner.com.au/2022/05/siaa-challenges-individual-adviser-registration-move-despite-industry-support/
[11] https://www.insurancenews.com.au/regulatory-government/plan-to-simplify-retail-client-definition-sparks-concern
[12] https://www.professionalplanner.com.au/2021/05/alrc-bombshell-chapter-7-removal-from-corps-act-on-the-table/
[13] https://www.professionalplanner.com.au/2021/06/corps-act-split-would-separate-companies-from-consumers-alrc-president/

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