Australia – Page 6 – FinTech and Blockchain Law Watch

Australian and Kenyan financial regulators sign co-operation agreement

Nov 16 2016

The Australian Securities and Investments Commission (ASIC) and the Capital Markets Authority of Kenya (CMA) have signed a co-operation agreement to share information about innovation in their markets including:

emerging market trends and developments; and
regulatory issues relating to innovation in financial services.

Kenya was an early adopter of FinTech with the launch of mobile phone based payments system M-Pesa back in 2007. It has since become one of the leading FinTech countries in Africa particularly in payments and credit innovations.

FinTech in Canada – Towards Leading the Global Financial Technology Transition

Nov 15 2016

By Robert Zinn and Jim Bulling

The Digital Finance Institute is a prestigious Canadian-based think tank for FinTech established in 2013 with a mandate to address the balance of innovation and regulation; support initiatives for financial inclusion; and advocate for diversity in FinTech. The Digital Finance Institute also promotes FinTech in Canada through conferences and international alliances; the creation of Canada’s national FinTech Awards; the FinTech Cup, the new university FinTech startup challenge and by preparing research papers on FinTech.

Robert Zinn and Jim Bulling contributed insight and content to the U.S. and Australian FinTech ecyosystems.

To read this publication, click here.

Possible AML implications for FinTechs

Nov 07 2016

By Jim Bulling and Michelle Chasser

The Australian Transaction Reports and Analysis Centre (AUSTRAC) is encouraging FinTech businesses to make contact about Australia’s anti-money laundering and counter-terrorism financing regime (AML/CTF regime) and how it may affect their business. A dedicated online contact form has been established which allows enquiries to be made directly to the Policy and Guidance team.

Businesses which provide a ‘designated service’ are reporting entities which have obligations under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006. There are a number of designated services that a FinTech business may provide including making loans, issuing a stored value card, giving effect to remittance arrangements, issuing interests in a managed investment scheme and (in the capacity of an Australian financial services licensee) arranging for a person to receive a designated service.

Currently activities relating to digital currencies such as BitCoin are not designated services. However, in October 2016 the Attorney General’s Department released its draft project plan for the implementation of the recommendations from the statutory review of the AML/CTF regime. Under the project plan, legislative proposals to regulate digital currencies under the AML/CTF regime will be developed by the first half of 2017.

Regulators in Australia and Ontario sign co-operation agreement

Nov 07 2016

By Jim Bulling and Michelle Chasser

The Australian Securities and Investments Commission (ASIC) and the Ontario Securities Commission (OSC) have signed a co-operation agreement to promote FinTech innovation. The agreement will make expansion into the Australian and Ontarian markets easier for growing FinTech businesses.

A referral mechanism has been created under the new agreement which allows ASIC to refer Australian FinTech businesses wanting to enter the Ontarian market to OSC and vice versa. Referred businesses will receive support to understand the market’s regulatory framework and how it applies to them from dedicated staff at the relevant regulator. To qualify for support FinTech businesses will need to meet the eligibility criteria of their home regulator including being a new or early stage FinTech business which has an innovation or product which will likely provide benefits to investors and consumers.

Both ASIC and OSC have established internal teams to assist FinTech businesses with their regulatory obligations and encourage development of the FinTech industry. ASIC’s Innovation Hub was established in April 2015 and OSC recently established LaunchPad in October 2016.

ASIC and OCS have also committed to share information about emerging market trends and potential impacts on regulation.

ASIC has entered into similar co-operation agreements with the UK Financial Conduct Authority and the Monetary Authority of Singapore amongst others this year.

Developing smart contracts for the financial services industry

Nov 03 2016

By Jim Bulling and Meera Sivanathan

With promised benefits such as risk reduction (through blockchain execution), cost reduction and enhanced efficiencies it is easy to understand why the use of smart contracts in the financial services industry is highly anticipated.

The Commonwealth Bank of Australia has successfully used smart contracts in relation to trade finance and the ASX is considering there use in clearing and settlement systems. However, before smart contracts can operate successfully, a few factors must still be addressed:

Immutability: ‘Immutability’ is a key feature of a smart contract stored on a blockchain. A smart contract’s program code does not change once stored on the blockchain – in essence it is permanent. While immutability creates certainty in a smart contract, it does not allow for flexibility. Methods to modify and correct terms of smart contracts are being developed.
Due diligence and accuracy: One risk presented by smart contracts is the possibility that the terms and conditions agreed upon by the contracting parties are not accurately programmed in the smart contract code. In this respect, it is likely that the due diligence process for smart contracts may evolve to be collaboration between both legal and IT professionals.
Legal recognition and framework: In Australia, there is uncertainty about enforceability of a smart contract. A hybrid model using smart contracts for verification and performance combined with using traditional contracts to record the terms and conditions of an arrangement could be a possible solution.
Contractual confidentiality: While smart contracts on a public blockchain generally preserve the anonymity of the contracting parties, it is possible that terms of the smart contract, including those that are highly confidential may be accessible to third parties. Possible solutions, such as the use of private blockchains, are currently being explored.

What happens when electronic signatures are affixed without authority?

Nov 03 2016

By Jim Bulling and Julia Baldi

A recent NSW Supreme Court decision, Williams Group Australia Pty Ltd v Crocker [2016] NSWCA 265, found that a personal guarantee was not enforceable against an individual where the electronic signature had been affixed without the knowledge or authority of the individual.

This finding applied notwithstanding that the electronic signature was a ‘genuine’ signature uploaded to the relevant execution system “HelloFax”, and that Williams Group Australia Pty, who sought to rely on the signature, had no knowledge of any impropriety with respect to the affixation of the signature.

The Court appeared to approve existing authority which provided the placement of a ‘genuine’ electronic signature on a document without any authority would likely amount to forgery at common law. Such a forgery could not be ratified, and would render the contract void.

The case is a reminder for any person seeking to rely on electronically signed documents to have in place adequate steps and protections to ensure all electronic signatures have been affixed with proper authority. Even a ‘genuine’ electronic signature may be unenforceable against an individual if it is affixed without proper authority.

More regulatory sandboxes

Oct 26 2016

By Jim Bulling and Michelle Chasser

Bank Negara Malaysia (BNM) has released details of the framework for Malaysia’s regulatory sandbox. The finalisation of the framework follows a consultation which began in July.

Under the sandbox framework BNM may consider granting regulatory exemptions to applicants for the purpose of testing an innovative product, service or solution for a period of up to 12 months.

Applicants wishing to apply for the sandbox should have innovations which are ready for testing and have the potential to:

improve the accessibility, efficiency, security and quality of financial services;
enhance the efficiency and effectiveness of Malaysian financial institutions’ management of risks; or
address gaps in or open up new opportunities for financing or investments in the Malaysian economy.

Are robo-advisers required to act in their clients best interests?

Oct 24 2016

By Jim Bulling and Michelle Chasser

In Australia, robo-advisers providing personal financial product advice must comply with the statutory fiduciary duty to act in the client’s best interests. The Australian Securities and Investments Commission (ASIC) has made it clear that the duty is technology neutral and applies to robo-advisers as well as traditional advisers. ASIC also clearly stated its position that robo-advisers are able to comply with the duty (Regulatory Guide 255)

Robo-advisers in the US do not currently have the same clarity as their Australian counterparts. US advisors are subject to fiduciary duties from a number of sources depending on the type of advice given and the type of adviser giving it. The Massachusetts Securities Division (MSD) has stated that robo-advisers and traditional advisers have the same fiduciary duty. However, MSD and the Securities and Exchange Commission (SEC) have raised questions over robo-advisers’ ability to comply with the duty and hold themselves out to be fiduciaries. MSD is particularly concerned that from its research it appeared to be usual for robo-advisers not to perform any significant due diligence on their client’s circumstances which is needed to make appropriate investment decisions. The SEC is currently working on a fiduciary rule for advisers with plans to release the proposal in April 2017.

In the UK, the Financial Conduct Authority (FCA) has developed the Principles for Businesses (PRIN) which includes the requirement to pay due regard to the interests of customers and treat them fairly. The FCA has stated that the PRIN applies to all regulated firms including robo-advisers. The FCA established an Advice Unit to provide particular guidance to robo-advisers in June 2016.

A digital currency for Australia

Oct 24 2016

By Jim Bulling and Meera Sivanathan

Digi.cash recently launched Australia’s first digital dollar. The e-currency, which is digitally ‘minted’ as electronically signed coins and banknotes can be used on various devices including smartphones and computers. Digi.cash currently operates under an exemption ruling by the Reserve Bank of Australia, which limits the total obligations to make payments under the facility to $10 million.

There is no doubt that digital currencies have potential uses in several areas of the Australian economy. More recently, Australia’s big banks have indicated interest in possible adoption of digital currencies. Keeping this in mind, there are a few key opportunities and risks associated with the use of digital currencies that corporations might wish to consider: Read More

FinTech hub ecosystems

Sep 28 2016

By Jonathan Lawrence

A recent EY study looks at how the UK FinTech ecosystem compares to that of California, New York, Germany, Singapore, Hong Kong and Australia based on their status as FinTech hubs. The report considers four attributes in each region:

Talent (availability and pipeline)
Capital (seed, growth and listed)
Policy (regulatory regimes, government programmes and taxation policy)
Demand (consumer, corporate and financial institution)

The analysis was commissioned by the UK Government to inform policy and support the sector. It also includes case studies on Israel and China.

The study gives extremely interesting comparative data across the regions and provides recommendations for the UK Government based on the experience in other countries.

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