A broader range of FinTechs will be able to access license exemptions to test new products for twice the amount of time under new rules aimed at attracting companies to the regulatory sandbox after just three companies used it in the last year.
The Federal government on Tuesday revealed draft legislation and regulations to broaden the scope of eligible financial services and products for the sandbox, and increased the timeframe of the exemption from one year to 24 months, as it flagged in this year’s budget.
Treasurer Scott Morrison said the move would “support innovation in financial services”.
“This proposed legislative package will be a game changer for competition in the financial services sector and continues the Turnbull government’s strong support of Australian FinTech, which has helped Australia become the second largest alternative finance market in the Asia-Pacific,” Mr Morrison said.
“This is an exciting opportunity that will further cement Australia’s position as a leading FinTech hub in the Asia-Pacific.”
The regulatory sandbox, which is overseen by ASIC, was launched last December, allowing a narrower range of financial services to be tested by FinTechs with real customers without obtaining an ASIC license for one year.
But the service failed to attract many FinTechs, with only three having utilised the sandbox in nearly a year. Two companies – Compeer Finance and First Rung – are currently using the license exemption to test new products, while Goodments, the first company to enter the sandbox, has completed its one year exemption period.
In contrast, a similar program in the UK recently welcomed more than 30 companies in one intake.
The lack of interest led the Federal government to announce a series of improvements to the sandbox in May’s budget and nearly six months later has moved to legislate it.
The changes allow for the likes of holistic financial advice in relation to super, life insurance and domestic and international securities, issuing and facilitating consumer credit, issuing non-cash payment products and providing a crowdfunding service to be tested in the regulatory sandbox.
The time that the exemption can be used has also been doubled to two years, which should improve the FinTechs’ ability to “evaluate the commercial viability of new concepts, promoting greater competition and delivering more choice for Australian consumers”.
A Treasury spokesperson said the changes will help more local FinTechs “overcome the initial regulatory burden and costs of licensing that may otherwise hinder innovative offerings”.
“This is expected to benefit more firms looking to provide innovative services to consumers, and allow a longer period of testing to accommodate the need for a startup to ‘pivot’ its business model,” the Treasury spokesperson told InnovationAus.com.
“Currently the greatest impediment to new entrants is the cost and difficulty of complying with the rules and regulations that are designed for major companies. The current ASIC sandbox provides some initial exemptions, but is narrow in scope.”
“The government’s new legislative sandbox will now enable a broad array of new entrants to get off the ground, provide more time to do so, and help provide better and cheaper options for Australian consumers.”
The draft legislation allows for regulations to provide conditional exemptions from ASIC licenses and ACL requirements for the purpose of testing new financial service and products, while the draft regulation provides the structure for the sandbox under ASIC’s reign.
Under the rules, participating FinTechs will be able to test a new product on up to 100 retail clients and 100 consumers, with an aggregate exposure of up to $5 million.
In the legislation’s explanatory memorandum, the government said the new and improved regulatory sandbox now “strikes a better balance between encouraging competition and innovation that delivers choice for consumers”.
The lack of interest in the regulatory sandbox was blamed on a number of issues, including its launch during the Christmas holidays and a lack of promotional efforts by government.
Goodments founder Tom Culver also said that the sandbox may have fallen victim to the Federal government’s declining interest in the innovation and tech sectors, while FinTech Australia said many of the companies considering the sandbox had instead worked out how to obtain the necessary license straight away through ASIC’s Innovation Hub.
Consultation on the draft legislation is open until 3 November, while consultation on the draft regulations will close at the start of December.