New legislation expands ASIC Fintech Sandbox.
On 10 February 2020, the Treasury Laws Amendment (2018 Measures No. 2) Bill 2019 (Cth) passed the Senate, and is expected to receive Royal Asset and come into effect shortly. The Bill amends the Corporations Act 2001 (Cth) (Corporations Act) and National Consumer Credit Protection Act 2009 (Cth) (NCCP Act) to broaden the scope of the fintech regulatory sandbox first launched by ASIC in December 2016. You can read about the fintech regulatory sandbox as it currently applies from our article released at the time, available here.
The new laws empower ASIC to grant exemptions to a wider number of fintech businesses, which will allow them to test fintech products and services in Australia without needing to acquire an Australian Financial Services Licence (AFSL) or Australian Credit Licence (ACL), for a prescribed period of time. Importantly, for the first time, ASIC will be able to make these exemptions conditional.
Fintech regulatory sandbox: overview
The current fintech regulatory sandbox is made up of three key exemptions that allow fintech businesses to test certain products and services without needing to hold an AFSL or ACL for a certain period. The exemptions effectively enable eligible fintech businesses to ascertain their licensing requirements through testing their products and services in the market, thereby reducing the regulatory burden involved in subsequently applying for a licence.
The three grounds for exemption are:
- existing statutory exemptions, or flexibility in the law (for example, testing products on behalf of an existing licensee);
- individual relief/waiver from ASIC; and
- ASIC’s specific fintech licensing exemption, provided under ASIC Corporations (Concept Validation Licensing Exemption) Instrument 2016/1175 and ASIC Credit (Concept Validation Licensing Exemption) Instrument 2016/1176.
To obtain the benefit of the specific fintech licensing exemption, a fintech business must:
- not have more than 100 retail clients;
- not have a total client exposure exceeding $5 million AUD;
- comply with consumer protection requirements;
- have adequate compensation arrangements;
- have both internal and external dispute resolution procedures.
Whilst there are no express criteria set down for obtaining individual relief, ASIC has stated that it is unlikely to provide this relief to businesses with more than 100 retail clients, or where granting relief would put consumers at risk.
Broadening the scope of the regulatory sandbox
The new law will effectively enhance the existing regulatory sandbox, in line with several jurisdictions around the world (including the UK, Singapore and Hong Kong). It allows regulations to be made under the Corporations Act and NCCP Act that will permit a greater number of businesses to test a broader range of products and services without needing a license for a longer period than is currently prescribed.
Significantly, the regulations may allow the exemptions to apply to specific elements of an existing product or service – this goes further than the current regulatory sandbox, which is limited to testing offerings previously unseen in the fintech market.
Additionally, the regulations empower ASIC to attach conditions to the exemptions for the first time. The purpose of these conditional exemptions is to enable the government to be responsive to the shifting and developing fintech market, and ensure that the exemptions are operating as intended.
Upon assent by the Governor-General, the legislation will enable a broader range of fintech businesses to test products and services in the Australian market without a licence for a prescribed period of time. At the same time, ASIC will have broader powers to attach and enforce conditions to the exemptions that it grants to fintech businesses.
This legislation appears to strike an appropriate balance between fostering innovation that broadens consumer choice, and implementing safeguards that minimise the risks posed to consumers and the integrity of Australia’s financial system.
The Bill provides for an independent review of the changes 12 months after commencement, at which point we will be able to examine the effectiveness of the regulatory sandbox in encouraging investment and innovation in the fintech space.
The amendments will be enacted as Australian law upon assent by the Governor General.
This article was written with the assistance of Lawyer, Harvey Duckett.
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