Earlier this month, the Australian Securities and Investments Commission (ASIC) released class waivers to allow eligible financial technology (fintech) businesses to test certain specified services without holding an Australian financial services or credit licence.
The licencing 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 (e.g. a marketplace lending platform) or personal products are not eligible for the sandbox.
Providing a regulator update at the FBAA 2016 National Industry Conference in November, Chris Green, ASIC’s group senior manager, credit, revealed that the exercise had been “difficult”.
“It’s a spot where we give limited relief from the law, particularly the licencing regions, to allow start-ups to do a bit of product testing in a place where they are not required to undergo the full weight of the regulatory regime,” he said.
“We try – along with other regulators around the world – to engage with new fintech companies, often people who don’t have a basis and experience in the industry but try and disrupt from an IT point of view. We set up some systems to help support them through the process.”
Elaborating on how the regime works, Mr Green noted that the balancing act between consumer interests and facilitating the development of the industry had been hard.
“We've created something called an innovation hub, which we encourage those organisations to access, and we try and steer them in the right direction and get an outcome. All of these outcomes, as far as we are concerned, are a balance of industry facilitation and consumer protection, so it’s not always easy,” he explained.
“It’s a difficult exercise, trying to balance the interests of consumers and the wider public who might access these new products or new services with the need to allow those to be tested.
“I guess in the extreme, if ordinary Australians lost money as a result of something that had occurred in the sandbox where there wasn't the full weight of regulation then that would be a problem, so it’s a difficult exercise.”
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
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. It explains that a business may be eligible to rely on the fintech licensing exemption to test its service. The business would need to comply with the total exposure limit of $5 million for wholesale clients.