T Skevington and M Bacina
Expanding the edges of the FinTech sandbox: new bill passed Parliament
More than two years after it was announced in the 2017–18 Budget, a bill has finally been passed laying the groundwork for an expansion of ASIC's regulatory sandbox.
The Treasury Laws Amendment (2018 Measures No. 2) Bill 2019 amends the Corporations Act 2001 (Corporations Act) and National Consumer Credit Protection Act 2009 (NCCP Act) to facilitate further exemptions for entities to test financial and credit products and services under certain conditions, without having to obtain a licence first.
The key changes in this bill are as follows:
1. Amending section 926B of the Corporations Act to insert new subsections providing that:
ASIC may apply conditions to an AFSL exemption provided to a person or class of persons to enable testing of particular financial services (proposed subsection 926B(3));
a person who receives an AFSL exemption subject to conditions must comply with those conditions. In addition, ASIC may apply for a court order requiring the person to comply with those conditions (proposed subsection 926B(4)); and
ASIC is empowered to determine how an AFSL exemption to enable testing of particular financial services starts or ceases to apply to a person or class of person (proposed subsection 926B(5)).
2. Amending section 110 of the NCCP Act to make corresponding amendments to the above in relation to Australian credit licences.
This is a welcome development which has been long awaited given that the scope of eligible products for the existing FinTech sandbox was considered to be overly narrow.
The original regulatory sandbox was introduced in December 2016, aiming to facilitate the development of new FinTech products, by allowing new products to be tested in the Australian market for 12 months without requiring the operating entity to first obtain an Australian Financial Services Licence (AFSL) or Australian Credit Licence (ACL).
However, the only eligible products were:
Deposit products, with a maximum $10,000 balance;
Payment products, if issued by an authorised deposit taking institution (ADI) and with a maximum $10,000 balance;
General insurance, for personal property and home contents and with a maximum of $50,000 insured;
Liquid investments, for listed Australian securities or simple schemes and with a maximum $10,000 exposure; and
Consumer credit contracts with certain features, and a loan size of between $2,001 and $25,000.
Further limiting its scope, the licencing exemption generally only applied to services provided by intermediaries, such as advising and dealing in certain products, but not for issuing financial products or providing credit, which limited the sandbox's scope and usefulness.
The explanatory memorandum to the bill clearly anticipates (perhaps optimistically) that the Government intends to be able to make timely changes to the sandbox regime in response to a changing market. In particular:
As the market changes and develops, it is important to have the flexibility to make changes to the types of eligible products and services to ensure the exemption operates appropriately
This flexible approach sets Australia’s regulatory sandbox apart from its international equivalents. As the regulations are subject to disallowance, there will be appropriate Parliamentary scrutiny of the eligible products and services and conditions for businesses testing in the regulatory sandbox.
Hopefully this indicates that the sandbox will be more accommodating to potentially disruptive FinTech projects in future.
While the explanatory memorandum and bills digest do not consider it in detail, in addition to amendments to regulations it is likely that consequential amendments will need to be made to:
ASIC Corporations (Concept Validation Licensing Exemption) Instrument 2016/1175
ASIC Credit (Concept Validation Licensing Exemption) Instrument 2016/1176,
if they are not replaced outright with new guidance and instruments. This represents an important step in the right direction, and hopefully the pace of Australian FinTech can also pick up.