Australia’s new Fintech-friendly stance clashes against skeptical market participants

Rick Steves

The ASIC forum that took place this week raised interest to financial technology investors as they were promised a boost to their ventures by the Australian government in the form of a “regulatory sandbox” that will include tax incentives, modernized Australian Market License (AML) requirements, particularly for crowdfunding enterprises), and an end of double taxation […]

Australia’s new Fintech-friendly stance and clashes

The ASIC forum that took place this week raised interest to financial technology investors as they were promised a boost to their ventures by the Australian government in the form of a “regulatory sandbox” that will include tax incentives, modernized Australian Market License (AML) requirements, particularly for crowdfunding enterprises), and an end of double taxation to digital currencies.

Behind these regulatory steps is the argument of the end of the commodity boom, but market participants and compliance experts see this latest guidance as nothing new. In spite of applauding the intentions to modernize businesses and help startups, troubles are expected to remain once these firms become big enough to require proper licenses.

For example, the cost to start up a peer-to-peer lending platform by following ASIC’s now-published interpretation of the Corporations Act, by rough estimates is close to AUD500,000, regulatory costs alone.

To gain a detailed perspective, FinanceFeeds reporter Ricardo Esteves today spoke to Sophie Gerber, Director of Sophie Grace Legal – Financial Services Licence & Compliance Specialists.

The Australian government wants to review the Australian Market License (AML) in regard to requirements for crowdfunding intermediaries and ease eligibility for Equity Crowdfunding regardless of companies’ assets and turnover. What change do you expect to see in the “Fintech” environment with these regulatory updates?

Sophie-Gerber
Sophie Gerber – Director (Legal and Compliance) at Sophie Grace Legal Pty Ltd.

Drastic changes would need to be made if the Australian government were to review the Australian Market Licence (AML) regime with a view to making it accessible to the fintech and crowdfunding space.

Currently obtaining an AML is a cumbersome, time consuming and expensive exercise – well beyond the reach of start-ups (and beyond the patience of most other organisations with budgets and timelines to get to market as first-mover). There are no more than 10 issued AMLs in the marketplace. If the government were to review AMLs in regard to crowdfunding intermediates, we would either expect to see drastic changes or a new sub-category of AMLs with less stringent criteria and a faster application process.

Is there any risk of a surge in abusive practices made by companies attracted to Australia by these soft requirements?

Softer requirements may open up the doors for money launderers and predators to obtain funding from retail investors. Similarly, as the world’s economies become more integrated, especially with better and better technology, regulatory arbitrage has become a real issue which regulators are tackling.

As far as Australia goes, they don’t tend to be a leader – even the currently mooted “regulatory sandpit” is a follow-on from a similar concept put forward by the UK’s Financial Conduct Authority in November 2015 (so Australia is already 4 months late to the party in that regard).

Will these regulamentary reforms in Australia, including concessional tax treatment for venture capital investments in start-up FinTech firms and an end to double taxation of digital currencies, make Australia the most “Fintech” friendly country in the world? What are the pros and cons?

Yes, we hope so, but historically there has been a mismatch between government policy and ambitions and ASIC’s regulation. For example the government wanted to make Australia a “financial services hub” a few years ago, but the policies and the implementation across all of the regulators were never forthcoming to ensure this happened.

In the fintech space, ASIC has been slow in responding to complex issues change and providing guidance. ASIC has been quick to aggressively shut down (rather than facilitate the compliance of) other growth opportunities in the past, such as Margin FX and retail debentures.

FinanceFeeds can conclude that skeptical business ventures would also point to examples such as distributed ledger, automated advice platforms and lending solutions they want to market to the masses but get blocked by ASIC license requirements. Given that banking institutions have the right Australian Financial Services license, they get to skip the queue.

Startups will likely multiply in Australia as requirements soften for them, but if credit licenses and financial services licenses remain the same, many of these ventures might have to relocate.

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