The Australian Securities and Investments Commission has released class waivers to allow eligible fintech businesses to test certain services without holding an Australian financial services or credit licence.
The licensing exemption (otherwise known as a “regulatory sandbox” will allow eligible businesses with up to 100 retail clients (or unlimited wholesale clients) to test specified services for up to 12 months, provided that they also meet certain consumer protection conditions and notify ASIC before they commence the business.
Eligible services include financial advice and “dealing in or distributing products”.
However, money lending to consumers and operating personal managed investment schemes (eg a marketplace lending platform) or personal products are not eligible for the sandbox.
Eligible products that can be advised on or distributed include:
- Deposit products, with a maximum $10,000 balance;
- Consumer credit contracts with certain features, and a loan size of between $2,001 and $25,000;
- Payment products, if ADI-issued and with a maximum $10,000 balance;
- General insurance, for personal property and home contents and with a maximum of $50,000 insured; and
- Liquid investments, for listed Australian securities or simple schemes and with a maximum $10,000 exposure
As an example, ASIC has provided an example of a business that wishes to test a new digital advice business that provides personal advice to wholesale clients about quoted Australian securities.
According to ASIC, the business may be eligible to rely on the fintech licensing exemption to test its service. However, the business would need to comply with the total exposure limit of $5 million for wholesale clients.
A ‘world first’
ASIC commissioner John Price commented: “ASIC’s fintech licensing exemption reflects our commitment to facilitating innovation in financial services. However, we are equally committed to ensuring that innovative products and services are regulated appropriately and promote good consumer outcomes.”
According to ASIC, businesses that are not eligible for the fintech licencing exemption are able to seek an individual exemption.
“Individual applications are an important part of Australia’s regulatory sandbox framework,” Mr Price said. “For instance, this option is open to existing licensees who wish to test an innovative product or service and comply with a modified version of the law.”
ASIC’s Mr Price highlighted that the licencing exemption is “unique”.
“No other major jurisdiction has implemented a class waiver which allows eligible businesses to notify the regulator and then commence testing without an individual application process,” he said.
Legal firm Dentons has welcomed the move, stating: "This is excellent news for Australian based fintechs and signals a new approach to the regulation of the innovation and venture technology sector in Australia. Together with other recent reforms including new tax incentives for investing in early stage innovation entities introduced on 1 July 2016 and proposed reforms to regulation of crowdfunding, these new exemptions will undoubtedly encourage greater local and foreign capital investment in Australian innovation projects.
"By passing these exemptions, ASIC has demonstrated its commitment to innovation which will not only ensure that consumers can benefit from access to new and disruptive financial products, services and credit solutions, but will help build the environment for Australia's burgeoning start-up community to become leading players in developing fintech and other innovative technology solutions which will serve as a launching pad into Asia and other overseas markets."
ASIC has also released Regulatory Guide 257: Testing fintech products and services without holding an AFS or credit licence, which contains information about Australia's "regulatory sandbox" framework, which comprises:
- Existing flexibility in the regulatory framework or exemptions already provided by the law or ASIC which mean that a licence is not required.
- ASIC’s fintech licensing exemption provided under ASIC Corporations (Concept Validation Licensing Exemption) Instrument 2016/1175 and ASIC Credit (Concept Validation Licensing Exemption) Instrument 2016/1176.
- Tailored, individual licensing exemptions from ASIC to facilitate product or service testing.
Mr Price added: “Fintech and start-up businesses now have more pathways than ever to begin testing the viability of innovative financial services and credit services consumers, before incurring many of the regulatory costs normally associated with running their business.”
[Related: Fintech at a 'tipping point', says ASIC]