Insights / February 24th, 2017

Fintech businesses – get your bucket and spade ready

What is the exemption?

Eligible persons will be exempt from holding an Australian financial services licence (AFSL) or Australian credit licence (ACL) for a period of 12 months to deal in financial products, provide financial product advice or provide credit services (i.e. credit assistance or acting as an intermediary) for particular financial products or credit contracts. This allows a range of Fintech start-ups to “go live” with various financial service or credit models, without having to get an AFSL initially.

Who is eligible?

To be eligible for the exemption you must not be banned from providing financial services or engaging in credit activities and you must not already hold an AFSL or ACL or currently act as an authorised representative of another AFSL or ACL holder.

What financial products / credit contracts do the exemption apply to?

The exemption applies to the following financial products:

  • all listed or quoted Australian securities;
  • simple managed investment schemes;
  • all deposit products;
  • home contents insurance products (e.g. household goods and jewellery);
  • personal and domestic insurance products (e.g. mobile phone insurance); and
  • payment products issued by ADIs.

The exemption also applies to credit contracts, excluding consumer leases, property loans, reverse mortgages and small amount credit contracts.

Do any monetary limits apply?

The exemption imposes a number of monetary limits when dealing with retail clients, including a requirement that the exposure of each individual retail client must not exceed $10,000 (in the case of financial products), $25,000 (in the case of credit contracts) or $50,000 (in the case of general insurance contracts). There are no individual exposure or client limits for wholesale clients.

Testing services cannot be provided to more than 100 retail clients and the total maximum exposure of all clients taking part in testing must not exceed $AUD5 million.

What other things should I be aware of?

Like all other AFSL holders, persons relying on the exemption will also be required to:

  • hold PI Insurance that meets ASIC’s specific requirements;
  • have an internal dispute resolution procedure and be a member of an ASIC-approved external dispute resolution scheme (e.g. FOS, CIO); and
  • make particular disclosures to clients when providing services, including that they are not licensed and that they are relying on the exemption to provide services.

Potential Issues

Some potential drawbacks of the exemption are:

  • Short Timeframes: with most AFSL and ACL applications taking up to 4 months to be finalised, eligible persons will need to apply for a licence before their 12 month exemption period ends.
  • Limited application: the exemption only applies to a limited number of low-value products that may result in the exemption being irrelevant for a number of fintech businesses.

ASIC is also wary of certain credit businesses which seek to take advantage of the regulatory sandbox, so care must be taken in considering eligibility.

We are experienced in providing advice to fintech businesses and understand your concerns. If you would like further information about the exemptions and how they could apply to you, please do not hesitate to contact us.