The Government has made no secret of its desire to establish Australia as a regional fintech hub, and this week set about reducing some of the red tape that might get in the way of start-ups hoping to market quickly.
A proposal before the Australian Securities and Investment Commission (ASIC) would see the creation of an industry-wide “regulatory sandbox” exemption to licensing requirements for Australian financial sector organisations.
Currently, “a new business that wishes to provide financial services must generally obtain an AFS [Australian Financial Services] licence from ASIC … before it can test whether its products or services are viable or will attract investment.”
“If changes to the business model are required, a business may need to spend more time and money before it can recommence operations— for instance, it may need to vary its AFS licence.”
ASIC said it processes 70 percent of license applications “within 60 days” and 90 percent “within 120 days”
“This compares well with other jurisdictions,” it said.
“However, our experience has been that businesses with innovative business models frequently lodge novel applications that may take additional time to process”.
To prevent licensing from being an inhibitor to financial innovation, ASIC is consulting on a proposal to “give conditional, industry-wide relief to allow new Australian businesses to test certain financial services for one period of six months without needing to obtain an AFS licence”.
This, it believes, could allow start-ups to validate their business model in a kind of licensing “sandbox” and use the validation to attract investment, thus increasing their viability.
It could also afford start-ups time to alter their business model or to pivot based on the feedback they received in the initial tests.
“If the testing suggests that the first business model is not viable, the business will be able to adjust its offering without incurring substantial costs,” ASIC said.
ASIC said at this stage it had no plans to offer extensions for start-ups wishing to use the sandbox for more than six months.
There are some limits to the areas of finance in which eligible start-ups would be allowed to operate.
“Our industry-wide proposal only covers advice and arranging services in relation to liquid products such as listed or quoted Australian securities, simple managed investment schemes and deposit products,” ASIC said.
It is also only available to start-ups that provide “services to no more than 100 retail clients, each with a maximum exposure limit of $10,000” and where the “total exposure of all clients (wholesale and retail) is less than $5 million.”
To further reduce risk, start-ups would need to find some form of ASIC-recognised “sponsor” in order to access the sandbox.
ASIC is accepting industry submissions on the proposal until July 22. A decision is expected at the end of this year.