Thinking | 16 December 2016

Fintech startup licensing exemptions released by ASIC

ASIC has released regulatory relief instruments and a Regulatory Guide 257: Testing fintech products and services without holding an AFS or credit licence, that makes good on the concept of a ‘regulatory sandbox’ for fintech start-ups. The exemptions will provide a real opportunity for small businesses wanting to provide certain types of advisory or administration services to financial services entities without having to go through the full ASIC licensing process. Existing businesses with infrastructure that covers off on some of the conditions of the relief – such as professional indemnity insurance – will be in a particularly good position to take advantage of the relief.

The conditions

The regulatory instruments – ASIC Corporations (Concept Validation Licensing Exemption) Instrument 2016/1175 and ASIC Credit (Concept Validation Licensing Exemption) Instrument 2016/1176 – allow eligible businesses to test certain products and services for 12 months without needing to obtain an AFS licence or credit licence, respectively.

The fintech licensing exemption is available for advice and dealing (but not for acting as a product issuer) and it applies in relation to:

  • listed or quoted Australian securities
  • simple managed investment schemes
  • deposit products
  • some kinds of general insurance products and
  • payment products issued by ADIs.

Notably absent is the ability to give advice, or deal in, superannuation interests under the fintech exemption. ASIC has stated in RG 257 that super is a class of financial product which ASIC considers unsuitable for unlicensed testing without an individual review of all of the circumstances.

People wishing to rely on the exemption do not need to apply to obtain the benefit of the fintech licensing exemption. If you meet the eligibility requirements and follow the conditions set out in the relevant instrument, you are legally entitled to rely on the exemption for 12 months. However, you must notify ASIC before you start relying on the fintech licensing exemption.  There is no prescribed form, but you must include the following information about the business:

  • the name of the legal person seeking to rely on the exemption
  • your Australian Business Number (ABN), Australian Company Number (ACN) or Australian Registered Body Number (ARBN) (if applicable)
  • whether you are a foreign company carrying on a business in Australia and whether you have registered under Part 5B.2 of the Corporations Act
  • a key contact person and contact number
  • the principal business address
  • details of the website (if applicable)
  • the names and dates of birth of all directors and controllers
  • whether or not there are any experts assisting you (e.g. consultants) and, if so, who they are and
  • a short description of your innovation and business model, with a focus on the services that are provided to clients and the process for providing those services.

You must also provide:

  • a certified copy of a bankruptcy check for each director and controller in the business
  • a certified copy of a national criminal history for each director and controller in the business
  • confirmation of EDR membership and
  • confirmation of adequate compensation arrangements (e.g. PI insurance arrangements).

Your testing period will begin 14 days after you notify ASIC of your intention to rely on the exemption. ASIC will notify you in writing of the date on which your testing period commences.

The conditions of the relief are set out in more detail in the table below, which has been extracted from RG 257.

Conditions of relief  


Client limits

Testing businesses relying on the fintech licensing exemption can provide services to up to 100 retail clients.

There is no client limit for wholesale clients.

Exposure limits

The fintech licensing exemption is available if:

  • the exposure of each retail client to deposit products, simple managed investment schemes, securities and payment products in relation to which testing services are provided does not exceed $10,000
  • the amount of credit under a credit contract in relation to which services are provided does not exceed $25,000 and
  • the sum insured under a general insurance contract in relation to which testing services are provided does not exceed $50,000.

There is no individual exposure limit for wholesale clients.

The total maximum exposure for all clients is $5 million during the testing period.

Consumer protection measures

Testing businesses providing financial services must give their retail clients some of the information normally contained in a Financial Services Guide, such as information about their services, remuneration and dispute resolution procedures.

Testing businesses providing credit assistance must give their clients the information normally contained in a credit guide, such as information about their services, remuneration and dispute resolution procedures. They must also comply with the ‘responsible lending’ obligations. Detailed guidance on these obligations is available in RG 209 and INFO 146.

Adequate compensation arrangements

Testing businesses must have in place adequate compensation arrangements.

Key requirements for compensation arrangements during the testing period are:

  • minimum requirement: a PI insurance policy must have a limit of at least $1 million for any one claim and for aggregated claims and
  • ‘run-off’ cover: you are expected to take reasonable steps to obtain run-off cover for a period of 12 months.


Dispute resolution

Testing businesses must have in place a dispute resolution system that consists of:

  • IDR procedures that comply with the standards and requirements made or approved by ASIC and
  • membership of one or more ASIC-approved EDR schemes.

The testing business is required to maintain EDR membership for:

  • the duration of the testing period (including any extensions) and
  • a run-off period of an additional 12 months.



Adrian Verdnik

Adrian’s financial services law practice covers superannuation, managed funds, insurance, and financial advice. His work includes both advisory and...

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