Growing opportunities out of the sandbox
The Australian Securities and Investments Commission (ASIC) nearly two weeks' ago published what might prove to be a landmark document — ‘CP 260 Further measures to facilitate innovation in financial services'.
Why was the publication of the consultation paper so important? Because it lays out the regulatory options that ASIC would like to use to ensure that it does not act as an undue inhibitor to necessary technological advancement within the financial services industry.
The reality confronting ASIC and the broader financial services industry is that while our highly developed regulatory system has worked well to protect consumers and other stakeholders, it has also acted as a significant barrier to the development of new products, particularly those products which fall under the broad banner of financial services technology (fintech).
How much does this matter?
Well, putting aside Prime Minister, Malcolm Turnbull's enthusiasm for and rhetorical flourishes around technology, workplaces are changing and Australian banks and other financial services institutions cannot afford to be laggards.
It is a measure of how quickly technology has changed and shaped the industry, that many of the jobs which are key to delivering digital solutions to the financial services industry did not even exist a decade ago. Further evidence comes with the reality that technology has forced many firms, including accountants and financial planning practices, to change their services and how they are delivered.
Thus, ASIC's CP 260 makes for important reading, particularly its acknowledgement that Australian innovators risk being seriously disadvantaged by a regulatory status quo.
Under the heading of "Speed to Market", the discussion paper outlines the problem thus:
"Under the current regulatory framework, a new business that wishes to provide financial services must generally obtain an Australian Financial Services (AFS) licence from ASIC (or reach an arrangement with an AFS licensee to act as its representative) 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".
"Our service charter states we will endeavour to make a decision on 70 per cent of AFS licence applications within 60 days and 90 per cent within 120 days. This compares well with other jurisdictions. However, our experience has been that businesses with innovative business models frequently lodge novel applications that may take additional time to process."
In other words, ASIC understands that the two to three months approvals process which has been deemed sufficient in a bricks and mortar environment, is not appropriate when speed to market is vital and this is where its proposed "sandbox" approach will be welcomed.
It would provide a conditional, industry-wide exemption to allow new Australian businesses to test certain financial services for six months without holding an AFS licence.
ASIC would, of course, need to closely monitor the products and services granted the flexibility of the "regulatory sandbox" but it would allow those companies the benefit of being able to prove real-time viability and therefore the ability to attract investment.
The sandbox, properly monitored, may prove to be one of the key factors which give Australian fintech companies the edge.
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