Blockchain, data rights, corporate tax, capital raising and skilled visas: Senate Select Committee’s second interim report
By John Bassilios and Sarah Khan
Blockchain, consumer data rights, corporate taxation, capital raising and skilled visas are front and centre of the 23 recommendations of the Senate Select Committee on FinTech and RegTech, now known as the ‘Select Committee on Australia as a Technology and Financial Centre’, in its Second Interim Report.
The Select Committee, chaired by Senator Andrew Bragg, was established in 2019 to strengthen the regulatory environment for FinTechs and RegTechs and innovative businesses in Australia more broadly.
The report also includes a standalone chapter on blockchain and digital assets, which is an area that will be of continued focus for the remainder of the Committee’s inquiry. We summarise the recommendations in the tables below.
Mirroring the first Interim Report, the findings are categorised across key areas: tax, regulation, access to capital, and skills and culture. The Second Interim Report also includes a standalone chapter on blockchain and digital assets – which will be an area of continued focus for the remainder of the Committee’s inquiry. We summarise the recommendations in the tables below.
Key recommendations include:
- establishing a new national body to consolidate regulatory responsibilities in relation to the implementation of the Consumer Data Right (CDR);
- pursuing mechanisms to increase international participation in the CDR and interoperability with similar schemes in other jurisdictions;
- publishing information about the National Blockchain Roadmap’s implementation and the evaluation of that implementation by the Department of Industry, Science, Energy and Resources (DISER) regularly;
- supporting a blockchain land registry initiative as a pilot project for Commonwealth-State cooperation on RegTech;
- improving clarity on the legal standing of ‘smart contracts’ running on blockchains;
- reviewing the ability for private businesses to access relevant information from government registers (including ASIC registers and AEC electoral roll data) for the purposes of facilitating KYC checks and also offer digital identity services;
- reviewing the global talent visa program; and
- changing insider trading rules to encourage ASX listings.
Following the Second Interim Report, the Committee will undertake the final phase of its deliberations.
Particular areas of focus will be:
- further work on the regulatory framework and blockchain technology, cryptocurrencies and digital assets;
- the policy environment for neobanks in Australia;
- instances of corporate law holding back investment; and
- options to replace the Offshore Banking Unit.
Submissions on the above matters are due by 30 June 2021. The Committee is due to present its final report by 30 October 2021.
Tax issues
| No. | Recommendation | Commentary |
| 1 | The Committee recommends that the Research & Development (R&D) Tax Incentive be amended to allow for:
|
In the first Interim Report, the Committee noted the call for greater clarity and certainty in relation to the operation of the R&D Tax Incentive for software development.
In the second phase of the inquiry, the submissions to the Committee noted that there is still a need for greater clarity around the eligibility of software for the R&D Tax Incentive. One suggestion was to allow more than one methodology in the R&D eligibility assessment to ensure the tax policy was sufficiently flexible to keep up with rapidly changing technologies. The Committee also acknowledged the issue of the timing of payments for the R&D tax rebates, which are often made months after a project is complete, resulting in a lack of upfront cash flow for work on innovation. The Committee therefore recommends that payments be made quarterly, as opposed to annually, to assist with businesses’ cash flow. |
| 2 | The Committee recommends that the Australian Government consider the establishment of a separate software-specific tax incentive scheme. | In addition to allowing different methodologies in the assessment of R&D eligibility, the Committee considers there should be a separate, software-specific R&D tax incentives to keep pace with innovations in software development that are currently not eligible for tax rebates under the existing R&D Tax Incentive framework. |
| 3 | The Committee recommends that the Australian Government consider abolishing interest withholding tax, in line with recommendations from the Johnson Review. | The Committee refers to the 2009 Australia as a Financial Centre - Building on Our Strengths report, and supports the recommendation to remove the imposition of withholding taxes on interest paid on foreign-raised funding by Australian banks, on interest paid to foreign banks by their Australian branches, and on financial institutions’ related party borrowing. Submissions stated the imposition of this withholding tax was an obstacle to the availability and diversity of debt capital, particularly offshore funding sources. |
Regulation issues
| No. | Recommendation | Commentary |
| 4 | The Committee recommends that the Australian Government and relevant agencies pursue mechanisms to increase international participation in the Consumer Data Right (CDR) and interoperability with similar schemes in other jurisdictions, including by:
|
The Committee was pleased that the CDR rollout continues to progress in Australia. Submissions to the Committee raised the need to ensure that the CDR is developed in a way that maximises the potential for international interoperability with similar schemes in other jurisdictions, while mitigating any potential risks.
In the interests of pursuing greater interoperability between CDR and schemes in other jurisdictions, the Committee recommends mutual recognition arrangements for accreditation between the CDR and other regimes. The Committee notes that the most effective method to align standards would be a multijurisdictional alignment body, as a starting point between Australia, Singapore and the UK. The Committee also considers that the Government should strongly consider creating a sandbox environment for companies to safely test products before they receive CDR accreditation. |
| 5 | The Committee recommends that the Australian Government, through Treasury and other relevant agencies, review and publicly report on what additional rules and safeguards may be required in the event that large non-bank digital platforms were to seek accreditation under the CDR regime. | The Committee received submissions on the potential for global non-bank technology companies, such as digital platforms (‘Big Tech’ companies), to participate in the CDR, and whether existing processes and the CDR Rules would be adequate to ensure a level playing field among participants should this occur.
In particular, the Committee noted that the participation of these companies in the CDR may raise a range of significant privacy risks, given the potential for combining sensitive financial data with the extensive amount of personal information already collected by these platforms. Accordingly, given the risks associated with Big Tech firms seeking accreditation under the CDR, the Committee recommends two key areas where safeguards may be required: competition matters (as submitted by the ACCC) and privacy issues (as submitted by the Office of the Australian Information Commissioner). |
| 6 | The Committee recommends that the Australian Government develop consumer ‘nudge’ mechanisms to be incorporated into the design of the CDR regime, to ensure consumers are periodically made aware of their ability to find better products and services through the CDR. | The Committee considered submissions that a high proportion of consumers could receive better deals and outcomes on many of their financial products if they engaged in the market and sought a better deal. To combat this inertia, the Committee supports the recommendation that the Government consider “CDR Prompts”, noting they should not be designed to result in badgering consumers or ‘hawking’ style operations.
The Committee notes that the recommendation is in line with other initiatives and recent reforms, particularly with the Your Future, Your Super reforms in the superannuation space where poorly performing superannuation funds must inform their members of their performance and direct them to comparison tools. |
| 7 | The Committee recommends that, pending any relevant findings of the ACCC, the Australian Government consider whether an access regime for app marketplaces may be necessary in order to ensure fair and equitable access for app developers. | The ACCC is currently examining the potential competition and consumer issues regarding mobile app shops or marketplaces as part of its ongoing Digital Platforms inquiry. It was submitted that the two dominant mobile app marketplaces, Apple’s App Store and the Google Play Store, stifles competition and innovation in the app development and FinTech spaces. Accordingly, the Committee considers that the Government may need to consider an access regime for app marketplaces to prevent unfair stifling of competition in this space (pending relevant findings from the ACCC). |
| 8 | The Committee recommends the Australian Government review the ability for businesses to access relevant information from government registers (including ASIC registers and AEC electoral roll data) for the purposes of facilitating identity checks and offering digital identity services, particularly in comparison with how this access is facilitated in similar jurisdictions overseas. | The Committee welcomes the Government’s two-year commitment to invest over $250m to advance digital identity reform. The Committee notes there are certain issues regarding Digital Identity services and KYC authentication checks: in particular, the expensive and inconvenient process to access relevant data from government public registers to facilitate identity verification and KYC authentication checks. Accordingly, the Committee considers that the Government should review these arrangements and see whether any changes or improvements are necessary. |
| 9 | The Committee recommends that the Australian Government establish a Commonwealth ‘Rules as Code’ innovation hub, accompanied by a regulatory sandbox, to advance legal coding approaches to Commonwealth legislation and regulation. | The push towards ‘Rules as Code’ is comprised of two separate approaches to the intersection between law and technology: creating a machine-readable code of existing legislative rules, or working to create an official, machine-consumable version of coded rules in the first instance of the rule-making process. The Committee notes that a number of challenges still need to be worked through if a Rules as Code approach is to become embedded in government processes. However, the initiative will reap a dividend of accelerated digitisation in government services and put Australia at the forefront of this domain internationally, creating new opportunities for Lawtech and RegTech companies. The ‘Rules as Code’ innovation hub will attempt to drive innovation in this area whilst controlling expectations and risks when carrying out these innovation trials. |
Access to capital
| No. | Recommendation | Commentary |
| 10 | The Committee recommends the Australian Government provide for an Australian scheme based on US Rule 10b5-1 as an option for start-up companies. The government should enact integrity measures to avoid any gaming which may arise from trading plan modification. | The US Securities and Exchange Commission Rule 10b5-1 permits insiders of publicly traded corporations to set up a trading plan for buying or selling a predetermined number of securities at a predetermined time, and provides an affirmative defence to insider trading. The Committee considered submissions broadly in support of an Australian equivalent to Rule 10b5-1, but acknowledged clearer standards were required in certain key areas, such as disclosure, duration, and the implementation of a cooling-off period. |
| 11 | The Committee recommends that the Australian Government amend existing legislation to require post-capital raising disclosure from listed companies. | It was argued to the Committee that requiring increased transparency about capital raisings would put pressure on companies to act in the interests of all shareholders; for example, that companies should be required to disclose to all investors, after a capital raise is completed, how the raising has been allocated. The increased transparency measures would also ensure retail/SMSF investors are given the chance to participate in capital raisings, or require companies to explain why such stakeholders may have been left out of the capital raising process. |
| 12 | The Committee recommends that the Australian Government should ensure that technology drives an equitable deal for retail shareholders by modernising the rights issuance system. | The Committee considers there is a need to improve the regulatory framework around capital raisings by listed entities, to ensure that retail shareholders are treated equitably. The Committee received submissions that a ‘single digital retail platform’ should be implemented to facilitate a more equitable and efficient mechanism of raising funds from non-institutional investors, and allow retail and SMSF investors to access larger-scale infrastructure investments, which are typically restricted from investing in. |
| 13 | The Committee recommends that if the rights issues reforms contained in the recommendations above do not resolve the equity issues for retail shareholders, the Australian Government should conduct a review into retail shareholder participation in capital raisings. | Submissions to the Committee argued that retail shareholders have been unfairly excluded from the capital raising process. In particular, the “sophisticated investor” definition in the Corporations Act 2001 was noted as excluding asset-poor but knowledge-rich retail investors who were, by law, considered less financially literate and thereby excluded from the capital raising process. It was also argued that the definition was outdated because a monetary threshold is used rather that one linked to understanding and experience. The Committee agrees that the current definition may need to be reviewed. |
Blockchain and digital assets
| No. | Recommendation | Commentary |
| 14 | The Committee recommends that the Council of Financial Regulators Cyber Working Group ensure its work takes into account existing and emerging international data standards with respect to blockchain and smart contracts. To this end, the Working Group should maintain open channels of communication with Standards Australia. | The Committee heard about the variety of standards applicable to blockchain and the burden this places on actors in the space. As such, the Committee supports the work of the Council of Financial Regulators Cyber Working Group in harmonising standards in the blockchain space. The Committee also supports Standards Australia, which has allowed Australia to take a lead role in the development of international standards for blockchain through the International Organisation for Standardisation Working Group. |
| 15 | The Committee recommends that the Department of Industry, Science, Energy and Resources (DISER) regularly publish information about the National Blockchain Roadmap’s implementation and the evaluation of that implementation. | The Committee supports the initiation of the National Blockchain Roadmap, which has been well-received. In keeping with the momentum that the Roadmap has created, the Committee recommends regular public reporting on the implementation of the Roadmap. |
| 16 | The Committee recommends that, as this is a quickly evolving technological and policy space, DISER act flexibly and responsibly with regards to reviewing, amending and updating the National Blockchain Roadmap as appropriate. | In line with Recommendation 15 above, and acknowledging the pace at which the technological and policy space evolves, the Committee recommends that the Roadmap be regularly reviewed, amended and updated where necessary. |
| 17 | The Committee recommends that National Cabinet consider supporting a blockchain land registry initiative as a pilot project for Commonwealth-State cooperation on RegTech. | The Committee recognises the substantial potential for blockchain technology to build the next generation of financial services and reduce costs for consumers, as well as streamline administrative processes in both public and private sectors. In particular, the Committee noted the potential for blockchain to drive efficiencies in the area of land registries. The Committee was cognisant that the Government is currently sponsoring two public sector RegTech pilots, and that land registries are a state and territory concern. Accordingly, the Committee recommends that this issue can be further explored in the context of the National Cabinet. |
| 18 | The Committee recommends that the Australian Government consider how best to improve clarity with respect to the standing of smart contracts under Australian law as a matter of priority. | In the private sector, the use of decentralised smart contracts is a promising application of blockchain technology in business. The Committee therefore recommends the Government consider the standing of smart contracts in law, given the uncertain legal status in respect of whether they are binding in Australia.
In relation to digital assets and cryptocurrencies, the Committee also recognises the need for improved clarity and certainty in the regulatory landscape applicable to digital assets, cryptocurrencies and related areas. The Committee notes that it will make this a focus of its deliberations in the final phase of the inquiry. |
Culture and skills
| No. | Recommendation | Commentary |
| 19 | The Committee recommends that the Australian Government review the global talent visa program and Hong Kong visa arrangements to ensure international competitiveness, including consideration of salary caps, age thresholds, turnover requirements and key criteria. | A number of submissions cited the current geopolitical events in Hong Kong as an opportunity to attract talent and companies looking to relocate to a country with a strong regulatory environment. The Committee considers it is crucial to ensure visa settings attract talent in the FinTech and RegTech sectors and that programs are responsive to industry needs, particularly as the global competition for talent intensifies. |
| 20 | The Committee recommends that the Australian Government, when undertaking the review of the global talent visa program, consider providing clearer policies and guidelines on the identified target sectors. | The Committee generally heard support for the approach of the global talent programs; however, some submissions suggested that certain elements were too restrictive, lacked clarity in some areas, and were not sufficiently flexible. |
| 21 | The Committee recommends that the Australian Government consider the introduction of more permanent residence visa options for employees of high-value businesses relocating to Australia. | In line with ensuring relocation and visa programs are responsive to industry needs and global competition for talent, the Committee supports the introduction of greater permanent residence options. |
| 22 | The Committee recommends that the Australian Government review its approach to the promotion of Australia as a destination for international talent in the FinTech and RegTech sectors, including through focussed marketing of the Global Talent Scheme and the Global Business and Talent Attraction Taskforce in target jurisdictions. | Submissions raised the point that more could be done to increase the recognition of initiatives such as the Global Business and Talent Attraction Taskforce, and the promotion and marketing of Australia’s global talent scheme more generally. The Committee supports the review of the global talent program and taskforce to ensure it achieves maximum reach and exposure. |
| 23 | The Committee recommends that the Australian Government consider mechanisms to improve visa administration, including faster processing times, and ongoing review of visa eligibility to ensure visa categories are adaptable and responsive to market changes in the FinTech and RegTech sectors. | The Committee also heard evidence that uncertainty surrounding timeframes and decisions for visa applications makes Australia less attractive for highly skilled individuals in the competitive global talent market. The Committee therefore supports measures to improve the visa administration processes and to ensure visa categories are responsive to market changes. |
This article was written with the assistance of Andrew Ong, Law Graduate.
Contact
John Bassilios
Partner & Fintech and Blockchain Lead
John has broad experience in financial services, funds management, blockchain, crypto, web3 and corporate law.
Sarah Khan
Lawyer
Sarah is a banking & financial services lawyer in our Melbourne team.
Investment Funds 
Technology & Digital Economy 
Fintech 
Banking & Finance You might be also interested in...
Banking & Finance | 8 Sep 2020
Australian Senate Committee on Fintech and Regtech publishes Interim Report
The Australian Senate’s Select Committee on Financial Technology and Regulatory Technology has released an Interim Report outlining the preliminary issues raised in the inquiry to date.
Blockchain, Cryptocurrency, Initial Coin Offerings & Security Token Offerings | 1 Apr 2021
Updated FATF Guidance on virtual assets and virtual asset service providers
The Financial Action Task Force, an international body that sets standards for anti-money laundering and counter-terrorism financing, published its updated Draft Guidance for public consultation.