Australian government makes amendments to fintech regulatory sandbox
TECHNOLOGY is redefining the finance industry, and the mushrooming of fintech companies is arguably the best example of this.
Through innovation, fintech companies open up a host of opportunities to better a customer’s experience by providing a wide array of services.
However, most fintech products fail to survive in the real world. Too often, this is because factors such as unfamiliarity with local regulations and sudden market shifts are unaccounted for.
Piloting products in a regulatory sandbox can circumvent this.
In a sandbox, products can be tested under a set of fixed conditions under a regulator’s supervision, giving room for affordable trial-and-error, easy access to investments, and dialed-down legal uncertainty.
The fintech community in Australia has much to be glad for today.
The Australian government has recently passed the Treasury Laws Amendment (2018 Measures No. 2) Bill 2019 that expands the time that fintech companies can spend in a regulatory sandbox — and expanded their scope.
Novel products can be tested for 24 months, without needing to obtain a financial services or credit license from the Australian Securities and Investment Commission (ASIC).
The original 2016 ASIC sandbox had only allowed for 12 months unregulated testing, and was limited to product/service specific startups (it now includes business involved in financial advice, issuing credit contracts and crowdsourced funding).
Senator Jane Hume, Assistant Minister for Superannuation, Financial Services and Financial Technology, said:
“A strong fintech ecosystem means a more competitive financial market landscape-one that is consumer-driven, efficient and among the world’s leaders.
“As a mature, diverse and internationally connected ecosystem, Australia is an attractive destination for fintech investment, and has the potential to grow further.
“There will also be strong consumer protections in place, including limits on the products and services that can be tested, and also retail client’s financial exposures.”
This amendment was long overdue, according to experts, who point out that under the 2016 ASIC sandbox, only seven startups qualified to participate.
However, not everyone shares the same sentiment. In late-2017, consumer advocacy groups raised concerns about the existence of a sandbox, and opposed the expansion of the legislation.
The Financial Rights Legal Centre and the Consumer Action Law Centre (Choice), also cautioned that an extended sandbox could permit unlicensed financial advice on things such as superannuation, insurance, and long-term investments.
Danielle Szetho, Chief of FinTech Australia, thinks otherwise.
“Many fintechs I see are oriented completely around what the consumer is thinking, and some are turning around what it means to be customer-centric […] the consumer is completely at the core. It’s more about maintaining the long-term integrity of the industry […] there needs to be a good safeguard again dodgy operators in place.”
There is a fine line between under regulation and overregulation, and striking a good balance is tricky.
Thus, while having a regulatory sandbox in place is applauded, there must be constant supervision and updates to ensure that this framework stays relevant, giving no chance for exploitation.