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The Australian financial services legislation is looking to the United Kingdom’s compliance laws as a framework to form their own legislative framework. Of particular importance to the Australians is the UK’s strength and easy navigation.
The Australian Law Reform Commission, or ALRC, was visited by Mark Steward, a member of the ALRC Advisory Committee for the Financial Services Legislation Inquiry, who was sharing his thoughts on the UK framework from both an international and comparative perspective as well as sharing experiences gained from his role as director of enforcement at the UK’s financial regulatory authority, the Financial Conduct Authority.
Much like the Australian Securities and Investments Commission, or ASIC, the Financial Conduct Authority, or FCA, oversees the regulation of financial services, securities, and markets. However, it also has prudential supervisory responsibility over the firms it oversees.
Speaking at the ALRC, Steward highlighted the need for simplicity and easy navigation in financial legislation in Australia, pointing to the UK and the FCA as an example. Pointing out the potential problems that could come from complex legislation, he said:
“Complexity in legislation is a real problem and if what is required by the legislation is too hard to understand or can only be understood by the high priests of the subject matter, then the intention and purpose of the law is bound to be frustrated,” he said.
“Compliance will be harder and non-compliance and breaches through misunderstanding is going to be more prevalent.”
He went on to point out that navigating the legislation will be a big part of making it simple enough to use, but cautioned on oversimplifying the legislation either, “because what we’re dealing with is complex in itself”.
One strength Steward pointed out from the UK financial legislation system was that the FCA makes a point of outlining principles that focus on outcomes, saying, “The UK model for financial services starts with overriding legislation that sets out the key statutory objectives that the regulator is meant to strive to achieve, as well as including the statutory powers that the regulator needs to be able to do those things from supervision to investigation to taking action.
“In the UK, statutory objectives are really presented as three overriding aims to protect consumers to enhance financial stability, market integrity, and to promote effective competition. So those things kind of override everything else.
“And then within the legislation, we have delegated rulemaking powers that allow us then to give effect to the content of what is required in regulation to achieve those things.
“So, our rules start with 11 general principles and these general principles of conduct comprising the obligation to act honestly, to act with due diligence to treat customers fairly, to manage conflicts of interest, etc.”
The FCA’s published guidance around their 11 general rules can be found in a handbook on the FCA website. They each enforce ethical financial practices and putting the customer first.
Going on, Steward said: “The guidance is really important because it sets out in narrative form, how we think firms should operate in practice to comply with those rules. And whilst the guidance isn’t mandatory… the general principles are mandatory.”
He went on to say that the UK and FCA’s combination of legislation imposed by the regulator as a legislator and non-legislative tools like guidance and search tools make for a platform of information that is easy to navigate and therefore easy to implement into the ALRC.
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