Proposed Enhanced Regulatory Sandbox for Innovative FinTech: Eight Days Left to Comment

Thursday 23 November 2017 @ 8.28 a.m. | Corporate & Regulatory | Legal Research

Eight days remain for submissions to the financial technology product (FinTech) consultation on the Exposure Draft Regulations (and accompanying Explanatory Statement) (the Draft Regulations) which is open until 1 December 2017. The Draft Regulations relate to the creation of a "legislative framework" (a sandbox) to encourage the development of FinTech product in Australia.  

About the Consultation

The consultation was announced in the last Budget (2017-18) by the Government who described the proposed regulations as:

". . . introducing a legislative framework for an enhanced regulatory sandbox to enable new and innovative financial technology (FinTech) products and services to be tested in Australia. This will extend the scope of activities and the time frame beyond that of the regulatory sandbox launched by ASIC in December 2016."

A previous consultation on the Exposure Draft Legislation (and accompanying Explanatory Memorandum) has already concluded in November 2017 resulting in a  Bill that extends regulation-making powers to enable an exemption from obtaining an Australian Financial Services Licence (AFSL) and/or an Australian Credit Licence (ACL) under certain conditions for the purposes of testing financial and credit services and products [that Exposure Draft is here ].

The Proposed Changes

In broad terms the Draft Regulations contain the policy design details for the licensing exemptions, including the eligibility criteria, the eligible types of products and services, and the conditions which must be met by those using the exemption. 

More specifically the Draft Regulations will relax the licensing requirements for innovative new FinTech startups, by excluding the mandatory requirements to meet all licensing requirements imposed by the Australian Securities and Trade Commission. Testing can be undertaken for up to 24 months with firms required to adhere to consumer protections and disclosure requirements. To rely on the exemption, a person must first notify ASIC that they intend to start relying on the exemption to provide an eligible financial service in relation to a particular kind of eligible financial product.

The new framework proposed by the Draft Regulations will allow FinTech firms to test and work on:

  • providing financial product advice in relation to a particular kind of eligible financial product; for example, superannuation, life insurance and domestic and international securities; 
  • applying for or acquiring a particular kind of eligible financial product; 
  • issuing, varying or disposing of a non-cash payment facility;
  • arranging for the issuing, varying or disposing of a particular kind of eligible financial product; and 
  • providing a crowd-funding service. 

Reliance on the exemptions, will require an eligible person to satisfy a number of ongoing conditions. Breach of the conditions will cause the exemptions to "automatically cease". The conditions to be satisfied include: 

  • restrictions on the kinds of financial products and credit products an eligible person can provide financial services or  credit activities for;
  • exposure limits applying to financial services provided in relation to general financial products, general insurance products, life insurance products and superannuation; 
  • an exposure limit of 100 retail clients and 100 consumers for each financial service and each credit activity, respectively; and 
  • an aggregate exposure limit of $5 million that applies to all financial services and credit activities provided by an eligible person - and their related bodies corporate under the exemption(s).

Exemption can also cease to apply if: 

  • the person notifies ASIC that they are no longer relying on the exemption; or
  • ASIC notifies the person that the exemption no longer applies either in relation to a specific financial service or credit activity or to the person in relation to all testing services and activities.

Persons relying on the exemption must also comply with certain requirements:

  • disclosure obligations to clients;
  • dispute resolution arrangements; 
  • best interests, client money and statement of advice obligations provided for in the Corporations Act 2001 (Cth); and
  • responsible lending obligations, requirements for responding to requests for hardship variations, and unfair contact term protections provided for in the National Consumer Credit Protection Act 2009 (Cth).  

Where an eligible person who relies on an exemption does not meet one or more of the requirements, ASIC may:

  • either provide notification to that person that they can no longer rely on the exemption, or 
  • apply to the Federal Court for an order that the person comply with the particular requirement. 

How to Respond

The consultation on the Draft Regulations and the accompanying explanatory statement remains open until 1 December 2017. Details on responding and how to respond are available here.

TimeBase is an independent, privately owned Australian legal publisher specialising in the online delivery of accurate, comprehensive and innovative legislation research tools including LawOne and unique Point-in-Time Products. Nothing on this website should be construed as legal advice and does not substitute for the advice of competent legal counsel.


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