Financial Technology, more commonly known by the buzzword 'fintech', is a broad description of a variety of new technologies and innovations that aim to compete with traditional methods in the delivery of financial services.
Avenues of Assistance for Fintech Startups
The Innovation Hub
ASIC's Innovation Hub is an initiative for fintech businesses that are developing innovative financial products or services. Eligible businesses may receive informal guidance from ASIC through the Innovation Hub. The guidance provided is intended to help start-ups and scaleups navigate Australia's regulatory system. For example, ASIC will assist businesses in understanding their obligations under the financial services and credit regulatory frameworks, how ASIC administers this framework and ASIC's thoughts on regulatory issues you should consider when establishing your business. Eligibility for the Innovation Hub will depend on whether your business meets certain criteria as set by ASIC.
The Enhanced Regulatory Sandbox
The Australian Government's Enhanced Regulatory Sandbox allows eligible fintech companies to test new products and financial services for up to 24 months without financial services or credit licensing requirements being imposed. The sandbox was created to encourage Australian innovation in the fintech sphere and minimise the regulatory barriers to entry.
Eligibility for the Regulatory Sandbox depends on whether your business meets certain criteria as set by ASIC. ASIC also provides a useful Infographic summarising how the Enhanced Regulatory Sandbox can be utilised.
What can you do in the sandbox?
There is no limit to the number of retail clients a fintech firm can onboard, however there is an overall $5 million exposure limit. Each retail client may commit a maximum of $10,000 for certain financial products (managed investment schemes, government debentures, stocks and bonds, specified securities and non-cash payment facilities)
Credit provision and non-cash payment facilities are included as services which can be tested, along with general insurance and life insurance products. An automatic 24 month maximum exemption period applies, after which the relevant financial services or credit licence must be obtained.
For credit providers, loans less than $2,000 are excluded, as are loan terms that exceed 4 years. The exclusions of reverse mortgages and small amount credit contracts remain, as does the $25,000 limit per credit contract.
Two tests need to be met:
- a net public benefit test; and
- an innovation test.
How to access the exemption
Notifications for exemptions from licensing requirements must be in the prescribed form and include the details provided for in the Regulations. Applicants must meet the eligibility test and explain how their proposed product or service satisfies the public benefit and innovation tests. A 30 day waiting period applies and ASIC will also assess if the 'fit and proper' test is met, and may refuse eligibility on this basis. After the 30 day waiting period has ended and if ASIC has not responded, the exemption is taken to commence.
Ongoing obligations are taken to be imposed on the entity relying on the exemption, including:
- AFCA membership
- disclosure and conduct requirements
- professional indemnity (PI) Insurance