A first look at the proposed “sandbox” licensing exemption for fintech start-ups has recently been released by ASIC. The proposal involves an industry-wide licensing exemption for fintech start-ups that provide a limited range of financial services. So what does it look like?
What is the exemption?
Under the proposed exemption eligible fintech start-ups will be able to test their financial services business for six months without needing to hold an AFSL.
What start-ups will be eligible?
The proposed exemption will be available for start-up businesses that give financial advice about, or arrange for other persons to deal in, a limited range of “liquid” financial products including listed or quoted Australian securities, simple managed investment schemes and deposit products. The exemption will not currently extend to allow businesses to issue financial products. Exemptions for other business models may be considered by ASIC on an individual basis.
If a business satisfies the first hurdle, it will then need to obtain sponsorship from a not-for-profit industry association or other Government-recognised entity. For example, Early Stage Venture Capital Limited Partnerships.
What restrictions will apply?
Restrictions around the number of retail clients that can be offered financial services by a business (for example a maximum of 100 retail clients) and the maximum exposure limit of each retail client (for example, of $10,000) will be imposed. In addition, a total exposure limit of all clients (wholesale and retail) of $5 million or less is likely to apply.
Will any existing AFSL requirements apply?
Businesses will still be subject to some of the existing AFSL requirements, in a more limited manner, including requirements to have adequate compensation arrangements such as holding professional indemnity insurance which covers the provision of financial services to retail clients or similar compensation arrangements and membership of an external dispute resolution scheme and maintaining internal dispute resolution procedures. Businesses that are providing financial product advice will also be required to comply with the existing best interests duty and conflicted remuneration obligations.
What disclosure obligations will apply?
Clients will need to be made aware that the business is providing financial services in a testing environment. If a client is a retail client, the client must also be given information about the kinds of services being provided, remuneration and the dispute resolution procedures available. In the case of providing financial product advice to retail clients, the client would need to be given information about the advice provided, remuneration and any conflicts of interest.
The “sandbox” exemption is expected to be finalised by the end of this year, with submissions on the proposed exemption closing on 22 July. To have your say on the “sandbox” proposal visit ASIC’s website at http://www.asic.gov.au/regulatory-resources/find-a-document/consultation-papers/cp-260-further-measures-to-facilitate-innovation-in-financial-services/.