The federal government will look to pass legislation improving the regulatory sandbox as a “matter of priority” when Parliament resumes next month after it was revealed that only seven companies had accessed the service since it was launched more than three years ago.
The planned changes to the scheme, which allow FinTech companies to test products and services with real customers without having to obtain a financial services licence, were first announced in October 2017, but the legislation has since stalled in Parliament.
The legislation expands the scope of the sandbox, allows for a broader range of FinTechs to access the exemption, and doubles the length of the licence exemption to two years.
In a submission to a parliamentary FinTech inquiry, ASIC revealed that only seven companies have entered the regulatory sandbox since it launched. It also said that 44 other companies had applied to take part in the scheme but were rejected as they didn’t meet the eligibility criteria.
That means that only four companies have used the sandbox in the last two years, with three FinTechs having gained exemptions as of October 2017.
Plans to enhance the regulatory sandbox were introduced to Parliament in February 2018 and were referred to committee for inquiry, which eventually recommended bill be passed. But the legislation remained in Parliament and lapsed with the election in May last year.
It was reintroduced as part of the Treasury Law Amendment (2018 Measures No. 2) Bill 2019 in July, and the legislation stalled in the upper house and remained there over the summer break.
Assistant Minister for Financial Technology Jane Hume conceded that the uptake of the sandbox has been slow.
“While this is a good start, it’s clear that more needs to be done; many firms have approached ASIC but have been unable to make use of the existing licencing exemptions,” Senator Hume told InnovationAus.
“This is why the Morrison Government is creating an enhanced sandbox, which will broaden the scope of who is eligible to participate, what can be tested, and how long businesses can test.”
The Coalition will look to pass the legislation quickly when Parliament resumes in February.
“The government’s enhanced sandbox will be more attractive to prospective users by increasing the testing timeframe to 24 months and expanding the range of eligible products and services – to include, for example, financial advice, the issuing of consumer credit contracts and facilitating crowdsourced funding,” Senator Hume said.
“The enhanced sandbox will help ensure that Australia’s FinTech sector is internationally competitive and is driving competition across financial services – helping Australians get a better deal on the financial products they use.”
In debating the bill last year, Labor MP Ed Husic pointed to the current lack of interest in the sandbox.
“It has not necessarily proven to be a smash hit, if I can put it very delicately. There have been a number of reforms considered to improve the outcomes. But, like so much FinTech reform in this place, it has taken ages to get these things moving,” Mr Husic said.
The legislation had been introduced with an aim to improving the uptake of the regulatory sandbox and making it a more attractive prospect for a broader range of FinTechs. But it will have taken about two and a half years for the new rules to be approved by Parliament since they were announced by the Coalition.
The new rules had been labelled as a “game-changer” by the then-Treasurer Scott Morrison back in 2017.
In its own submission to the FinTech inquiry, FinTech-focused co-working space Stone & Chalk argued that government’s changes to the regulatory sandbox still don’t go far enough.
“The Commonwealth government’s regulatory sandbox initiative is, unfortunately, not providing a fully effective entry point for new FinTech startups,” the Stone & Chalk submission said.
“Its low uptake, when compared to the equivalent UK experience, suggests that it is not fully effective in providing for fast-track market testing and the introduction of new innovations,” it said.
“A more effective sandbox model could reduce time to market at a lower cost, could improve access to finance by a reduction in environmental uncertainty and, by contributing to a reduced failure rate, helping ensure that more innovative products reach market.”
Stone & Chalk argued that ASIC’s regulatory oversight should be separated from assessments of eligible companies, and called for a number of sandbox partner organisations to be approved to assess companies and provide advice and mentoring.