Sandbox regime set to test the limits
James Mabbott: the ASIC proposals are timely for Australian FinTech startups
The Australian Securities and Investments Commission’s regulatory sandbox proposals have been hailed as a game changer in the global FinTech scene but may need some tweaking to accommodate ideas that take a little longer than six months to test out.
Current regulations say a business must either have an Australian financial services licence from ASIC or be represented by another licensee before it can market test new financial products and services.
The sandbox idea was floated in the May Federal budget and would likely be implemented in December. Other measures in the budget promoting FinTech included tech research outfit Data61 pilot testing blockchain technology and an outlay of $200,000 to promote Australia internationally as a FinTech hub.
The ASIC sandbox would help FinTechs market test new products and services quickly without having to go through the time and expense of gaining a financial services licence.
“Building on ASIC's experience through its Innovation Hub, ASIC has identified some barriers faced by new financial technology businesses seeking to enter the financial services market. These barriers include speed to market and meeting the organisational competence requirements of a licensee,” ASIC said in a statement outlining the sandbox proposals.
The global FinTech scene is finely poised at the moment with worldwide investment in FinTech expected to swell more than fourfold to $88 billion this year, according to a report from Deloitte, and the ASIC proposals could help local financial technology startups grab a larger share of that growing pie.
The regulator is seeking submissions on its consultation paper by July 22.
The proposed regulatory sandbox exemption would apply for six months. Businesses in testing mode using the sandbox would need a sponsor and be limited to 100 retail clients.
The testing business would also need adequate compensation arrangements, be a member of an external dispute resolution scheme and comply with a modified set of conduct and disclosure obligations.
The sandbox waiver would allow up to $10,000 investment per retail client in listed securities, deposits and simple managed investment schemes. The service being tested could have an unlimited number of wholesale clients, subject to a total investment cap of $5 million.
James Mabbott, head of KPMG Innovate, believes the ASIC proposals are timely as Australia attempts to make its way in the FinTech world.
“The regulatory framework at the moment means you could spend a lot of time getting approval for something that ultimately won’t work,” Mr Mabbott said.
He said the time limit of six months for the proposed sandbox waiver appears to be long enough for adequate testing, but suggested having the flexibility of an extension of several months available if needed.
“Clearly you don’t want people to be out in the market testing forever and creating some regulatory arbitrage,” he said.
Alex Scandurra, the CEO of FinTech hub Stone & Chalk was, not surprisingly, bullish on ASIC’s regulatory sandbox proposal, calling it a potential ‘game changer.’
“If implemented not only would Australia's ‘sandbox’ lead the world and leapfrog what the UK is contemplating, it would provide a strong proof point towards the successful collaboration between leaders in the FinTech community, ASIC and Federal Treasury that started late last year.”
Alex Pollak, CEO of investment firm Loftus Peak that specialises in investing in disruptive companies, sees the ASIC sandbox proposals especially suited FinTechs with a technology bent.
“It’s great for FinTech’s that are light on the ‘fin’ and heavy on the ‘tech’,” Mr Pollak said, such as startups working on collapsing long financial processes with too many human touches via techniques like form automation.