Several months ago, we discussed the Government’s announced expansion of the FinTech regulatory sandbox (https://compliancequarter.com.au/regulatory-changes/). It was proposed then to further reduce red-tape for businesses that wished to trial new financial technology (FinTech) or credit technology products. At that stage, the extent of that expansion was unknown.
By Dr Drew Donnelly, Compliance Quarter.
On 24 October 2017, the Government released draft legislation and regulations designed to implement that expanded regulatory sandbox. In today’s article we contrast the proposed new set of services and products with the set in the existing regulatory sandbox. This will be of interest to anyone considering trialling a new fintech or credit technology product.
Note, this is a draft amendment bill and draft regulations and the Treasury seeks your feedback on them up until 3 November 2017 (for the draft bill) and 1 December 2017 (for the draft regulations).
Background
In 2016 the Australian Securities & Investments Commission (ASIC) introduced a FinTech ‘regulatory sandbox’ which relaxes the compliance obligations for those who wish to offer certain services and products including the requirement that an entity hold an Australian Financial Services Licence (AFSL) or an Australian Credit Licence (ACL). In return those entities need to meet certain strict conditions, including prior notification of ASIC and adherence to consumer protections (such as disclosure obligations, responsible lending obligations and client money rules). This is intended to encourage innovation by reducing the ‘red-tape’ that would otherwise apply to such initiatives.
The Federal Government announced on May 9 as part of its Budget package that the unlicensed testing period would be extended from 12 to 24 months and expanded to allow the testing of a wider range of services and products.
Services and products in the existing regulatory sandbox
The current regulatory sandbox provides an exemption for the following services:
- financial product advice in relation to eligible products;
- dealing in eligible products, other than by issuing those products.[1]
The eligible products include:
- all listed or quoted Australian securities;
- other securities, bonds or debentures issued by the Australian government;
- simple managed investment schemes;
- all deposit products;
- some insurance products (home contents insurance products and personal and domestic insurance products);
- payment products;
- Credit contracts (but not those secured over residential property or subject to additional responsible lending obligations under the National Consumer Credit Protection Act 2009).[2]
Services and products in the proposed expanded regulatory sandbox
The new regulations propose that the following services will be exempt:
- financial product advice with respect to an eligible financial product;
- applying for or acquiring a particular kind of eligible financial product;
- issuing, varying or disposing of a non-cash payment facility;
- arranging for the issuing, varying or disposing of a particular kind of eligible financial product; and
- providing a crowd-funding service.[3]
Note this extension of the services that are eligible for the regulatory sandbox means a move from a focus on ‘intermediary services’, where the entity mediates between the customer and the provider or the product (such as a bank in the case of a deposit facility), to include direct provision, such as crowd-funding services.
The eligible financial products relating to those services have been expanded as well. First, a distinction is made between products issued to wholesale clients, and retail clients. It provides an exemption for financial services to wholesale clients, in relation to all financial products, except for derivatives and margin lending facilities.[4]
Second, with respect to retail clients, the list of eligible products includes all those contained in the existing regulatory sandbox, but has been extended to include:
- all general insurance products (except consumer credit insurance products);
- life insurance products;
- superannuation products;
- a security specified in a regulation made for the purposes of paragraph 738G(1)(c) of the Corporations Act 2001, if the person is providing a crowd‑funding service.[5]
If you wish to read the proposals for yourself or submit feedback, go to the Treasury website at https://treasury.gov.au/consultation/c2017-t230052/.
[1] See s5(1), ASIC Corporations (Concept Validation Licensing Exemption) Instrument 2016/1175.
[2] See s4, ASIC Corporations (Concept Validation Licensing Exemption) Instrument 2016/1175
[3] See s5, Corporations (FinTech Sandbox Australian Financial Services Licence Exemption) Regulations 2017 (Exposure Draft)
[4] See s9, Corporations (FinTech Sandbox Australian Financial Services Licence Exemption) Regulations 2017 (Exposure Draft)
[5] See s10, Corporations (FinTech Sandbox Australian Financial Services Licence Exemption) Regulations 2017 (Exposure Draft).
