Insights / August 22nd, 2019

FinTech Start Ups to get Boost as ASIC Expands Regulatory Sandbox

In response to the slower than expected uptake of the initial regulatory sandbox regime launched in 2016, ASIC is set to expand the scheme to include a greater number of products. This extension is expected to create the ideal climate for an increased number of FinTechs to appear on Australia’s regulatory landscape.

The Treasury Laws Amendment (2018 Measures No.2) 2019 (Bill) was introduced on 4 July 2019 and is currently before the House of Representatives. [1] Should the Bill pass it is expected that the broader scope will drive competition in the financial services industry and ease burdens – regulatory, administratively and financially - that are commonly faced by start-ups.[2]

The expansion is expected to include life and general insurance products, superannuation, listed international securities and all financial products for wholesale clients except margin lending facilities and derivatives on top of the current list of financial services and credit advice.[3]

The new regime will also broaden the sandbox from its modest position of allowing unconditional exemptions[4] to include conditional exemptions from Australian Financial Services Licence and Australian Credit Licence requirements. The conditions will limit:

  • the types of products and services that can be provided to both wholesale and retail clients;

  • the exposure of clients to the products and services, including total investment activity; and

  • the total number of clients who are provided the products and services.

However, if businesses fail to meet these conditions then the exemption will automatically end. ASIC will also have the power to decide how the exemption starts and finishes, cancel it or apply for a court order if businesses fail to comply with the conditions.[5]

Other consumer-protections include:

  • notifying clients before and while providing an exempt product or service;

  • maintaining certain procedures, memberships and arrangements;

  • best interests obligations;

  • client money obligations; and

  • providing statements of advice to clients.

Although expansion provided by the new sandbox will result in an increase in the types of credit services and products covered by the exemption, it will not be relaxed for credit services already in the scheme. They can expect to have stricter requirements imposed on them.

In a real boost for business the sandbox will double its current time offering from 12 to 24 months.

ASIC’s policy objective is that by enabling FinTechs, industry growth will be spurred through the introduction of their products into the market earlier. A financial industry that allows for greater compliance and management of risks whilst also improving efficiency and creating growth will only be a more successful one. It is hoped that the current expansion will provide this springboard.[6]

[1] Treasury Laws Amendment (2018 Measures No.2) Bill 2019

[2] Smart Nation: Singapore, What is smart nation <https://www.smartnation.sg> 26 July 2019

[3] Goldberg, Daniel, Doherty, Ryan & Bouletos, Despina, More Room to Play: ASIC Expands Australia’s Regulatory Sandbox Regime for FinTech Start-Ups, Association of Corporate Counsel, 26 July 2019

[4] ASIC, RG Testing Fintech Products and Services Without Holding an AFS or Credit Licence, Issued 23 August 2017

[5] ASIC expands Australia’s regulatory sandbox regime for FinTech start-ups, Australian FinTech <https://australianfintech.com.au> 26 July 2019

[6] Fintech Australia Newsroom, FinTech Australia Supports Proposed Sandbox Expansion and Calls for Further Improvements, <https://fintechaustralia.org.au>, 15 March 2018

This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice. You should not act upon the information contained in this publication without obtaining specific professional legal advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.