ASIC’s regulatory sandbox proposal to remain unchanged

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ASIC has released a review of its regulatory sandbox, introduced in December 2016. In the review ASIC proposes to retain class waivers known as the fintech licensing exemption, that allow eligible financial technology (fintech) businesses to test certain specified services without holding an Australian financial services or credit licence. ASIC had committed to reviewing its fintech licensing exemption following 12-18 months’ operation.

Read the consultation paper

ASIC Commissioner John Price said, ‘by introducing ASIC’s fintech licensing exemption,we have given a range of fintech businesses the chance to test their ideas without needing a licence.’

‘Even in cases where interested fintechs have discovered that they were not able to make use of the fintech licensing exemption, we have found that its introduction has encouraged businesses to come forward and consider their other options that result from the flexibility in ASIC’s existing regime.’

ASIC’s current fintech licensing exemption allows eligible businesses to test specified services for up to 12 months with up to 100 retail clients, provided they also meet certain consumer protection conditions and notify ASIC before they commence the business.

To date, four fintech businesses have used the fintech licensing exemption. Relying on the exemption, one business tested its financial services (providing advice and dealing in listed Australian securities); two businesses are currently testing advisory and dealing services in deposit products; and one business is testing acting as an intermediary and providing credit assistance.

In addition, over a dozen fintech businesses have also contacted ASIC about using the fintech licensing exemption.

The consultation period closes on 27 February 2018.

Background

ASIC’s Regulatory Sandbox Framework

ASIC’s Regulatory Sandbox Framework was introduced in December 2016. It comprises:

  • Existing flexibility in the regulatory framework or exemptions already provided by the law or ASIC which mean that a licence is not required. Examples include existing ASIC relief for non-cash payment products like stored value cards and regulations meaning that a licence is often not required for certain foreign exchange services;
  • ASIC’s fintech licensing exemption provided under ASIC Corporations (Concept Validation Licensing Exemption) Instrument 2016/1175 and ASIC Credit (Concept Validation Licensing Exemption) Instrument 2016/1176;
  • Tailored, individual licensing exemptions from ASIC to facilitate product or service testing – individual exemptions of this nature are similar to the ‘regulatory sandbox’ frameworks established by financial services regulators in other jurisdictions.

Fintech licensing exemption

ASIC’s fintech licensing exemption allows eligible businesses to test specified services for up to 12 months with up to 100 retail clients, provided they also meet certain consumer protection conditions and notify ASIC before they commence the business.

The fintech licensing exemption was initially proposed in Consultation Paper 260 Further measures to facilitate innovation in financial services(CP 260). Information about the services covered by the fintech licensing exemption, is available in an ASIC infographic, as well as in RG 257.

Businesses that are not eligible for the fintech licensing exemption are able to seek an individual exemption. ASIC’s policy on exemptions is available in Regulatory Guide 51 Applications for relief (RG 51).

Other measures to facilitate innovation

The ASIC review coincided with Treasury’s own consideration of feedback to its exposure draft legislation and regulations relating to the Government’s enhanced sandbox proposal.

The Government’s draft proposal would extend the scope of the ASIC’s fintech licensing exemption in a number of areas, including the testing period, caps, limits and number of times a business can make use of the sandbox.

In December 2016, ASIC released updated guidance to licensees on satisfying the requirements to maintain competence in Regulatory Guide 105 Licensing: Organisational competence (RG 105) and Regulatory Guide 206 Credit licensing – Competence and training (RG 206).

The updated guidance in RG 105 provides greater flexibility for some ‘small-scale, heavily automated businesses’ seeking to nominate a responsible manager. These businesses may now nominate a responsible manager without day-to-day involvement in the business to provide regular sign-off on the licensee’s processes and systems and the quality of financial services provided.

RG 105 has also been updated to include six examples to help illustrate the how ASIC assess submissions about a responsible manager’s knowledge and skills under Option 5 of RG 105.

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