As part of the Federal Budget 2017-18 released on May 9 the Australian Government announced plans to enhance the regulatory sandbox established by the Australian Securities and Investment Commission (ASIC) last year.
The proposal includes expanding the types of products and services that will be eligible to be tested and extending the testing timeframe from 12 months to 24 months.
Currently sandbox participants can provide financial product advice about, and assist clients to trade in, lower risk financial products such as listed Australian securities, simple managed funds and deposit products. Accordingly, participation in the sandbox is typically limited to intermediary type businesses (eg robo-advisers). ASIC specifically excluded issuing financial products and lending from the sandbox to ensure that consumers received all the usual protections from the issuers. However, the Government proposes to expand the types of financial services and products that are allowed to be tested. Under the proposal, businesses will be able to:
- provide “holistic” financial product advice (presumably on a wider range of financial products);
- lend to consumers; and
- issue short term deposit or payments products (it is unclear what is meant by short term deposit products and how this will interact with the Australian Prudential Regulation Authority oversight usually required for some products of this kind).
Crowdsourced equity funding platforms would also be able to participate in the sandbox. This is a new financial service created by the recently enacted equity crowdfunding regime that takes effect from 28 September 2017.
As with the current sandbox, participants would be subject to a tailored range of consumer protections and disclosure requirements including responsible lending obligations, the best interests duty, and the need for adequate compensation and dispute resolution arrangements. However, details have not yet been released in relation to how financial products will need to be wound down at the end of the testing period if the participant does not obtain a licence.
We look forward to seeing further details on the enhanced sandbox when draft legislation is released.