Last month, the Australian Securities and Investments Commission (ASIC) proudly announced its unique fintech exemption designed for startups seeking to enter the financial services industry.
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However, the uniqueness of this exemption lies in the fact that no other major jurisdiction has yet implemented such a waiver, which allows eligible fintech businesses to test specified services and products without holding an Australian Financial Services Licence (AFSL) or Australian Credit Licence (ACL).
Other countries (such as the UK, Japan and Singapore) have indicated their intention to offer similar waivers, so in 2017 we are expecting to see a flurry of regulatory announcements as other countries try to avoid being left behind.
ASIC has identified speed to market, organisational competence and access to capital as the three main issues that restrict new fintech business from providing financial services or credit activities. Therefore, the creation of this exemption is aimed at alleviating some of these issues and demonstrates ASIC’s commitment to facilitating innovation in the financial services industry.
The exemption has been drafted based on the feedback received from its Consultation Paper 260. Further measures to facilitate innovation in financial services were released in June 2016. In a change from its initial proposal, ASIC has extended the testing period (from 6 to 12 months) and widened the range of financial services products the exemption applies to.
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Furthermore, ASIC also released a corresponding Regulatory Guide (RG) 257 entitled “Testing Fintech products and services without holding an AFS or credit licence”, which contains information about Australia’s ‘regulatory sandbox’ framework. ASIC has also updated RGs 105 and 206 to provide greater flexibility in relation to organisational competence requirements for some ‘small-scale, heavily automated businesses’ seeking to nominate a responsible manager.
One-year Testing Period
Under this exemption, businesses are allowed to test specified services for up to 12 months with a maximum of 100 retail clients, provided the businesses meet certain consumer protection conditions and notify ASIC in writing before commencement.
The testing period will commence 14 days after ASIC is notified with ASIC formally notifying the businesses in writing of their commencement date. ASIC also requests that the businesses submit a short report detailing their experiences throughout the testing period at the end of the testing period. The businesses may also extend their testing period for an additional 12 months by application.
However, ASIC encourages businesses to apply for an AFSL or ACL in the initial stages of the testing period in case ASIC does not grant an extension. In addition, Businesses should be aware that current AFSL or ACL application processing times are approximately 4 to 6 months on average due to the high volume of the current workload faced by ASIC.
Hence, it is strongly recommended that businesses start preparing the required AFSL or ACL application documents and submit an application within the first 5 months of the testing phase.
Businesses which are not eligible for the exemption, such as existing AFSL holders that wish to test an innovative product or service to comply with a modified version of the law, may seek for an individual exemption under the existing relief regime referred in RG 51 applications for relief.
This article was written by Angela Yang, a Lawyer at Sophie Grace Legal.