News & Analysis

ASIC to propose regulatory sandbox licensing exemptions for early-stage startups

- May 5, 2016 3 MIN READ

The Australian Securities and Investments Commission (ASIC) has announced it is set to release a public consultation paper on a proposed regulatory sandbox licensing exemption next month. The proposal will look to further facilitate fintech innovation in Australia by examining licensing waivers for new businesses.

Commissioner John Price said, ‘This consultation paper will seek feedback on additional steps that ASIC may take to facilitate fintech innovation while maintaining protections to ensure investor and consumer trust and confidence.”

The consultation paper will propose additional steps to assist early stage fintech startup companies to navigate through the regulatory framework. These measures include, greater clarity, and guidance on how to assess whether new businesses have the skills and experience required to be granted a licence from ASIC, flexibility around the skills and experience requirements, and a class-wide licensing waiver (regulatory sandbox exemption) for early stage startups to test and trial their product in the market.

“ASIC anticipates that the proposed regulatory sandbox exemption may bring better financial services to market quicker while being mindful of consumer protection concerns,” said Price.

The paper will also consult on important features of the regulatory sandbox including a six month window for testing certain financial services without the need for a licence, restrictions on the types of services that can be provided in a testing capacity and the products that those services can relate to, ability for sophisticated investors to participate along with a number of retail clients as well as separate monetary exposure limits for those clients, consumer protections and modified conduct and disclosure obligations that will apply to product and service testing.

The consultation proposals have been prepared with the input from representatives in the fintech industry including ASIC’s Digital Finance Advisory Committee (DFAC) and the Treasurer’s Fintech Advisory Group.

This proposal comes just two days after the 2016 Budget was delivered by Treasurer Scott Morrison, who announced the consultation paper on the regulatory sandbox scheme will be released ‘shortly.’

In the Budget speech Morrison said, “We will continue our investment in our national innovation and science agenda – to create our own ideas boom, in every city, in every town, in every factory, farm, shop and office – including support for new start-up businesses.”

Since the Budget changes to tax incentives for early stage investors have also been made to continue Australia’s upward growth in the startup space. Yesterday Christopher Pyne, Minister for Industry, Innovation and Science announced the Senate had passed two initiatives to support investors and improve access to capital for VCs. These initiatives were passed with bipartisan support and along with exemptions in regulation are designed to make investment for Australian startups more attractive.

Earlier this year the regulatory sandbox was first proposed to the Treasury by Fintech Australia, the fintech body and industry association and has now been recognised by ASIC as an important step towards fintech innovation.

For some startups it takes years for their concepts and products to get regulatory approval, and with this space changing and growing month on month, the waiting game is a challenge that needs to be overcome.

The implementation of a regulatory sandbox scheme provides a controlled and safe environment for startups to determine if their ideas are viable and whether or not they have potential to transform into multi-million dollar companies.

Price explains ASIC will continue to prioritise assistance to startups working in the fintech sector with the aim of promoting market efficiencies and benefits for both consumers and early stage investors.

The current proposal demonstrates ASIC’s commitment to encourage innovation in areas that can lead to improved consumer and market outcomes.

Previously Price has said as ASIC continues to promote fintech innovation it will not compromise the fundamental principles of financial services regulation. “We continue to prioritise appropriate regulation to promote consumer and investor trust and confidence.”

In relation to automated financial advice, crowd-sourced equity funding and digital marketplace lending ASIC has established internal working groups to ensure that the regulation of new products and services is appropriate, effective and promotes consumer and investor trust.

Image: John Price. Source: Youtube.