Starting last week and continuing this week, Australia is seeing a light into the new economy, now that the “resources boom is over” (have we heard this enough already?).
The Treasurer, Scott Morrison, has announced a new “regulatory sandpit” for fintech startups to play in.
On Monday, ASIC bounced back to life, issuing in quick succession long overdue guidance on the hot topics of robo-advice and peer-to-peer lending. ASIC’s long overdue guidance paralleled the government’s release of a 35-page report titled ‘Backing Australian FinTech’ that accompanied a statement from Treasurer, Scott Morrison.
For those of us working as advisors to get businesses properly regulated (in financial services that means obtaining an Australian Financial Services Licence (“AFSL”) and for credit providers this means an Australian Credit Licence (“ACL”)) every day of the week, the guidance is nothing new – just a more formal version of what has been gleaned over the past few years of trying to assist innovative clients start their businesses.
What’s missing so far in this puzzle is better regulation. 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 AUD 500,000. That’s the up-front regulatory cost, and doesn’t include the cost of developing the platform or website. Your annual ongoing costs from a regulatory standpoint are at least half that. It’s a lot of money to sink into an idea.
Entrepreneurs grow weary and disillusioned
Instead of tackling the Corporations Act and making it more workable, the Australian government has simply declared that it wants a moratorium on its implementation while businesses get started.
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ASIC has snapped to attention as a result (can you imagine the emails last week to senior staff pushing them to get this guidance out ASAP?) and in my view is subtly stating its case that it doesn’t want to lose the grip it has on innovation – that being, the grip which seems to be stifling new business and innovation.
Have you tried to get an AFSL or ACL for your new business lately? Businesses are struggling – ASIC won’t let many of them through the system often because they don’t understand the business or don’t want to be the person to rubber stamp something that might go wrong.
ASIC’s analysts are struggling – they write back and say they have a huge workload and will respond in 14 days, or 28 days, or whenever they get around to it. Entrepreneurs grow weary and disillusioned.
Our clients want to be first to market with blockchain, automated advice platforms, lending solutions – ASIC freezes and lets the incumbents dominate instead – so banks are implementing blockchain because they already have the right AFSL to do so, but people who want to bring the benefits of blockchain to the masses are stalled until this week when their AFSL came back suddenly with no further questions – great news but is it sustainable?
Businesses looking to offer credit in a cheaper and more innovative way are not let out of the starting blocks for fear credit will get into the wrong hands and that they will become the regulator that caused the second (or third?) Global Financial Crisis.
I’m excited to see what the regulatory sandpit looks like. But I’m already scared of what happens to those who are too big to play in the sandpit anymore.
Is the Australian Government kicking the problem down the road? We might now have the opportunity to plant the seeds of good businesses off the ground, but will we let them thrive in 2 or 3 years, when they have to join the AFSL or ACL queue?