Regulatory sandbox and innovative regulation

By Daniel Knight

Australian FinTechs are closer to getting a regulatory “sandbox” after the Australian Securities and Investments Commission (ASIC) released its detailed consultation paper this week.  The paper details proposals for a testing ground for innovative robo-advice providers and other similar services.  It also highlights ASIC’s views about some regulatory options already open to FinTechs under the current law, as we discussed in a previous post.

In a sign of ASIC’s engagement with this nascent sector, ASIC launched its proposals at a fintech startup founders event in Melbourne.  ASIC emphasised it is seeking industry feedback and is open to making changes.

The sandbox will allow new entrants to test a service for up to 100 retail clients for up to 6 months without holding an AFSL.  The service can only relate to advice and “arranging” for dealing, catering primarily to robo-advisers.  Product issuers such as payment facility providers and marketplace lenders are excluded, as is advice about general and life insurance.  Each client’s exposure must be capped at $10,000 and total exposure at $5 million.

Key consumer protections, such as external dispute resolution, professional indemnity insurance and some form of disclosure, will still be required.  Startups will not need to apply to ASIC to be admitted to the sandbox (unlike comparable sandbox arrangements in other jurisdictions), but may need to be vetted by a “sponsor”, such as a hub, co-working space or venture capital firm.

Some key questions for ASIC and the industry to grapple with in consultation will be:

  • Is 6 months long enough? Should a pending AFSL application stop the clock?
  • Are there other pockets of fintech that need relief?
  • Can startups cope with the proposed consumer protections and do they go far enough?
  • Does the “sponsor” role provide additional protection or introduce a new barrier?

Submissions can be made until 22 July and the final regulatory position is expected by December.

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