Since December 2016, the Australian Securities and Investments Commission (ASIC) has provided a “regulatory sandbox” framework for Australian fintechs, enabling them to test financial products and services without having to obtain an Australian Financial Services Licence (AFSL) and/or an Australian Credit Licence (ACL).
Earlier this year, the federal government passed legislation that enhanced the exemptions to bolster innovation in the sector.
The Treasury Laws Amendment (2018 Measures No. 2) Bill 2019 has extended the regulatory sandbox period from 12 months to 24 months and has empowered ASIC to make decisions over when the licensing exemption starts and ceases to apply in order to protect the interests of customers.
ASIC has now published guidance around the enhanced regulatory sandbox (ERS), which is due to commence on 1 September.
The regulator’s guidance – Information Sheet 248 Enhanced regulatory sandbox (INFO 248) – includes guidance around:
- the key features of the ERS;
- the application process;
- the conditions that apply under the ERS exemption;
- the length of the exemption period; and
- the alternatives to the ERS exemption.
ASIC commissioner Cathie Armour noted: “ASIC’s guidance is intended to help businesses understand how the enhanced sandbox works, including their obligations to consumers, how it may be applicable to them and how to apply to make use of the sandbox.”
Eligible credit activities
ASIC’S guidance includes conditions relating to the testing of credit products.
Emerging firms can provide credit contracts, and credit services that relate to a credit contract if:
- the term of the contract does not exceed four years;
- the credit limit of the contract is more than $2,000 and less than $25,000;
- the contract is not a reverse mortgage or a small amount credit contract; and
- the contract is not secured by a charge or lien over a consumer’s household property that is covered by regulation 6.03(2) of the Bankruptcy Regulations 1996.
Moreover, ASIC stressed that a $5-million aggregate client exposure limit applies across all participating firms.
For credit providers, the $5-million total exposure limit is calculated by adding together the total value of credit contracts entered into by borrowers.
ASIC stressed that firms that breach limits “will not be able to rely on the ERS”.