Fintech Sandbox Regulations are Expanding

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The Australian Government has introduced an Enhanced Regulatory Sandbox to provide a space for innovative firms to test new products and services without financial services or credit licensing requirements being imposed.

The new regulations set to commence on 1 September 2020 will supersede the ASIC administered Regulatory Sandbox. Fewer restrictions will be imposed in order to encourage the development and testing of new financial products and services in Australia. This will allow firms to assess if their ideas are robust and have value for consumers prior to going through the full licensing process.

What’s changed?

The new regulations will not limit the number of retail clients a fintech firm can onboard, where there was previously a limit of 100 retail clients. However, the existing overall $5 million exposure limit will remain.

The range of financial services eligible for the program will be broadened. Credit provision and non-cash payment facilities will be included, as will general insurance and life insurance products. An automatic 24 month maximum exemption period will apply, up from 12 months previously, after which the relevant financial services or credit licence must be obtained.

Credit providers are now eligible to apply for an exemption, as opposed to just credit intermediaries. However, loans less than $2,000 are excluded, as are loan terms that exceed 4 years. The exclusions of reverse mortgages and small amount credit contracts remain, as does the $25,000 limit per credit contract.

Licensed businesses are able to access the Enhanced Regulatory Sandbox to test new services they are currently not authorised to provide.

Two new tests have been introduced; a net public benefit test and an innovation test will need to be met.

How to access the exemption

Notifications for exemptions from licensing requirements must be in the prescribed form and include the details provided for in the Regulations. Applicants must meet the eligibility test and explain how their proposed product or service satisfies the new public benefit test and innovation test. A 30 day waiting period applies and ASIC will assess if the recently introduced ‘fit and proper’ test is met, and may refuse eligibility on this basis. After the 30 day waiting period has ended and if ASIC has not responded, the exemption is taken to commence.

Ongoing obligations are taken to be imposed on the entity relying on the exemption, including:

  • AFCA membership;
  • Statements of Advice and compliance with the Best Interest duties requirement for personal advice providers to retail clients;
  • Relevant financial product disclosure requirement;
  • Responsible lending provisions apply to credit providers;
  • Prescribed notifications to clients;
  • ASIC make-good orders must be complied with; and
  • Client money provisions must be complied with.

Background

The Corporations (FinTech Sandbox Australian Financial Services Licence Exemption) Regulations 2020 and National Consumer Credit Protection (FinTech Sandbox Australian Credit Licence Exemption) Regulations 2020 received Royal assent on 26 May 2020 and will commence on 1 September 2020.

Further Reading

Next steps

If you would like further information as to whether the Enhanced Regulatory Sandbox may be suitable for you, please contact Sophie Grace for further information.

About The Author

Amanda Christie

Amanda works with the Compliance and Legal Team with a focus on compliance and legal services. Amanda assists the compliance team in implementing ongoing compliance support, updating procedural documentation and assisting clients with the preparation of AFSL and ACL applications, variations and also assists in the implementation of compliance reviews. She also assists in the preparation of legal documentation and legal research.

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