Earlier this year, HopgoodGanim published an article discussing ASIC's proposal to introduce an Australian Financial Services (AFS) licencing exemption to enable FinTechs to test their services or products without having to invest the time and money to obtain an AFS licence (Sandbox Exemption).
ASIC has now finalised its position by introducing ASIC Corporations (Concept Validation Licensing Exemption) Instrument 2016/1175, ASIC Credit (Concept Validation Licensing Exemption) Instrument 2016/1176 and publishing Regulatory Guide 257, which provide detail regarding eligibility, notification of reliance procedures and conditions applying to FinTechs utilising the Sandbox Exemption.
The Sandbox Exemption provides a "safe place" for FinTech start-ups to test the market's appetite for their concept and develop the product accordingly, without having to invest the time and money to obtain an AFS licence.
This article provides a summary of the Sandbox Exemption, including:
- Eligibility criteria
- Products or services that can be tested
- Conditions which apply; and
- Notification requirements
In order to take advantage of the Sandbox Exemption to provide financial services, the person seeking to rely on the relief must not:
- be banned from providing financial services;
- already hold an AFS licence;
- already be an authorised representative of an AFS licensee; or
- a related body corporate of an AFS licensee.
When utilising the Sandbox Exemption to engage in credit activities, the person seeking to engage must not:
- be banned from engaging in credit activities;
- hold a credit licence;
- already be a credit representative or licensee; or
- be a related body corporate of the credit licensee.
Products or services that can be tested
The Sandbox Exemption allows complying FinTechs to provide financial product advice and deal (other than by issuing) in the following products without an AFS licence:
- listed or quoted Australian securities;
- simple managed investment schemes;
- deposit products;
- some types of general insurance products (excluding home and building, motor vehicle, travel, consumer credit, sickness, accident and life insurance); and
- payment products issued by Authorised Deposit taking Institutions.
The Sandbox Exemption is focused on providing relief for intermediaries, being those services which advise and deal in the products listed above. Accordingly, the exemption is not available for complex products, illiquid products or arrangements which cannot easily be reversed, products with a long term focus (i.e. superannuation) and products which have been targeted to vulnerable consumers (i.e. consumer leases).
If you do not fit the eligibility criteria or provide a product or service which may utilise the Sandbox Exemption, you can apply to ASIC for individual relief.
ASIC has seemingly listened to feedback from the FinTech industry and extended the time period for relying on the Sandbox Exemption from the proposed 6 months in the consultation paper, to 12 months. This will enable start-ups to properly work through the problems often faced in the early stages of the business and be in a better position to comply with the AFS licencing requirements by the end of the testing period.
The table below sets out the conditions that must be met when relying on the Sandbox Exemption:
There is the potential for some of these requirements to be waived or varied upon application to ASIC.
People seeking to rely on the Sandbox Exemption are not required to make an application to ASIC prior to relying on the relief. Rather, before taking advantage of the Sandbox Exemption, ASIC must be provided with a written notice of an intention to rely on the relief. The notification must include the following:
- name of the person seeking to rely on the Sandbox Exemption;
- ACN, ABN or ARBN;
- whether the entity is a foreign company carrying on business in Australia and it is registered under part 5B.2 of the Corporations Act;
- key contact person and phone number;
- principal business address;
- details of any website;
- names and date of birth of all directors or controllers together with copies of the following for each:
- bankruptcy check; and
- national criminal history check;
- details of any experts assisting the entity;
- description of the innovation and business model;
- confirmation of EDR membership; and
- confirmation of adequate compensation arrangements.
The 12 month testing period begins 14 days after lodgement of the notification with ASIC. The testing period can be extended upon application to ASIC.
Award-winning law firm HopgoodGanim offers commercially-focused advice, coupled with reliable and responsive service, to clients throughout Australia and across international borders.
2015 AFR Beaton Client Choice Awards:
Best Law Firm (revenue $50m - $200m)
Best Professional Services Firm (revenue $50m - $200m)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.