Australia: ASIC extends focus on disruptive innovation - A move towards greater international co-operation

Last Updated: 13 December 2017
Article by Matthew Daley and Suzana Livaja

Australian Fintech businesses should be considering how to expand overseas, as should foreign Fintech businesses that wish to enter the Australian market and benefit from ASIC's regulatory sandbox.

On 23 November 2017, the Australian Securities and Investments Commission (ASIC) entered into a co-operation agreement with the Dubai Financial Services Authority, marking the ninth agreement entered into with a foreign regulatory authority for the purposes of providing a framework for co-operation between ASIC and the foreign regulator to support and understand financial innovation in each jurisdiction.

A referral framework for "innovator businesses"

In March 2015, ASIC established an Innovation Hub to assist innovative Fintech businesses to navigate its regulatory system. Through its Innovation Hub, ASIC has been able to engage with the Fintech community, provide assistance to Fintech start-ups and liaise with Fintech experts through ASIC's Digital Finance Advisory Committee.

In line with this current framework, Australian Fintech businesses wanting to expand their operations overseas can now receive support from a number of foreign regulatory authorities following referral from ASIC. The support is available to both Australian and foreign innovative financial businesses, provided that they have been offered support by either ASIC or their respective foreign regulatory authority (each an Authority) through the Authority's innovative function, or that would otherwise qualify for such support (Innovator Business).

Since March 2016, agreements have been formed with the following countries and authorities:

  • United Kingdom: Financial Conduct Authority (UK FCA Agreement);
  • Singapore: Monetary Authority of Singapore (Singapore MAS Agreement);
  • Canada: Ontario Securities Commission (Canada OSC Agreement);
  • Hong Kong: Hong Kong Securities and Futures Commission (Hong Kong SFC Agreement);
  • Japan: Financial Services Agency of Japan (Japan FSA Agreement);
  • Malaysia: Securities Commission Malaysia (Malaysia SC Agreement);
  • United Arab Emirates - Abu Dhabi: Global Market Financial Services Regulatory Authority (Abu Dhabi GMFSRA Agreement);
  • Switzerland: Swiss Financial Markets Supervisory Authority (Swiss FMSA Agreement); and
  • United Arab Emirates - Dubai: Financial Services Authority (Dubai FSA Agreement),

(collectively, the Co-operation Agreements).

The Co-operation Agreements provide a framework for co-operation between the "innovation functions" of each Authority, whereby a referring Authority can refer to a receiving Authority an Innovator Business seeking to enter the market of the receiving Authority.

Who can qualify for support

To qualify for referral to a foreign regulatory authority, Australian Innovator Businesses must ensure they have either met or would meet ASIC's Innovation Hub eligibility criteria.

The ASIC Innovation Hub eligibility criteria require the Fintech business to, broadly:

  • be in the early stages of obtaining a licence from ASIC or having held an ASIC licence for less than 12 months;
  • offer innovation which is new or a significantly different product or service from those currently available;
  • demonstrate that its innovation provides a better outcome for investors and consumers resulting from the innovation; and
  • provide a business plan outlining details of its customers, services provided, payment arrangements, other businesses that it will work with, stage of the innovation, and the type of assistance that is required from ASIC.

Foreign Innovator Businesses will of course need to consider the eligibility criteria for support through their financial services regulator's "innovation function".

Additionally, each Co-operation Agreement (with the exception of the UK FCA, Hong Kong SFC and Swiss FMA Agreements) specify that the criteria for support that an Australian or foreign Innovator Business is required to demonstrate, at a minimum, includes the following:

  • that it offers innovative financial products or services that benefit the consumer, investor and/or industry; and
  • that it has conducted sufficient background research on the laws, regulations and regulatory requirements applicable in the jurisdiction of the authority into which the business wishes to enter.

Certain Co-operation Agreements also contain additional minimum criteria for support, including:

  • the Japan FSA Agreement: that the Innovator Business has a genuine need for support;
  • the Ontario SC Agreement: that the Innovator Business is a financial services provider in its first year of operation since authorisation; and
  • the Malaysia SC Agreement: that the Innovator Business is able to demonstrate that it has considered the feasibility of its business model.

What support is offered through the "innovation function"?

The dedicated function established in each jurisdiction to support innovation in financial services (Innovation Function) will of course depend on the comprehensiveness of the relevant regulatory authority's framework to support Innovator Businesses. In saying this, however, each Co-operation Agreement (with the exception of the Swiss FMA and the Hong Kong SFC Agreements) specify that the support offered through the Innovation Function of the relevant regulatory authority will include:

  • a dedicated team for Innovator Businesses;
  • help for Innovator Businesses to understand the regulatory framework in the relevant authority's jurisdiction, and how it applies to them;
  • assistance during the pre-authorisation application phase to:
    • discuss the authorisation application process and any regulatory issues that the Innovator Business has identified;
    • ensure that the Innovator Business understands the relevant Authority's regulatory regime and what it means for them; and
    • where relevant, refer the Innovator Business to other domestic authorities for assistance;
  • support during the authorisation process, including the allocation of authorisation staff that are knowledgeable in financial innovation to consider the application; and
  • a dedicated contact to periodically engage with, or provide assistance to, the Innovator Business for a period of one year after the Innovator Business is authorised, as and when required.

The support offered through the Co-operative Agreements will enable Innovator Businesses to expand internationally and reduce the time to market, while also providing a framework for Innovator Businesses to understand the regulatory regime in a foreign jurisdiction and how it may apply to them.

A move towards greater international co-operation

In line with each regulator's strategy to encourage disruptive innovation by reducing the barriers for Innovator Businesses to expand internationally, the Co-operation Agreements also provide an undertaking to share information about innovations in financial services in their respective markets, where appropriate.

Additionally, the Malaysia SC and Hong Kong SFC Agreements contemplate the potential for the Authorities to consider participating in joint innovation projects on the application of financial technologies.

The Co-operation Agreements are an important step for greater international co-operation in this novel and developing area and harmonisation of the financial services regulatory framework applicable to Innovator Businesses across jurisdiction are welcomed. This should see the advancements in innovative technologies being spread internationally and create a major opportunity for not only Fintech start-ups but the industry and consumers generally through providing timely access to new technology and innovative processes in financial services.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

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