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From bitcoin, to robo-advice, crowdfunding and regulatory sandboxes: Scott Morrison's fintech plan

Photo: Getty Images.

The Turnbull government yesterday released its statement on Australia’s fintech future, committing new support to the industry that is “transforming our financial systems and our economy”.

Treasurer Scott Morrison was at Sydney fintech hub Stone & Chalk, spruiking the government’s need to get on board with the innovation in the sector.

“The reason I’m excited about fintech, and what it can deliver, is that it has the power to transform our economy more broadly,” he said.

“It has the power to completely bring in a new environment of competition. For small businesses out there who find it difficult to attract capital, for large government agencies who are struggling with convoluted and difficult payment systems… to medium sized businesses that are trying to bring their products up to date and to connect with their consumers in way that haven’t before.

“We are looking to see these new fintech tools being able to lubricate our economy and drive the transition in our economy that previously wasn’t possible. How successful will it be, time will tell, but we’re not going to die wondering as a government.”

He said Australia is the envy of the developed world when it comes to economic growth and jobs growth “but we cannot take that for granted”.

“It won’t happen on it’s own, and there are big risks involved… failing to appreciate the opportunities in innovation, failing to understand that if you tax companies out of existence then they won’t be there to create the opportunities.”

Here’s a brief summary of Australia’s fintech priorities and what they involve.

Crowdfunding

Through the government’s Crowd‑Sourced Equity Funding (CSEF), introduced last December, eligible Australian public companies will have access new funding sources to help them develop their ideas.

In addition to this government is consulting with industry leaders to develop a crowd-sourced debt funding framework during 2016.

Following further consultation with the industry, including the FinTech Advisory Group, the government will also consider increasing the assets and turnover threshold used to determine eligibility for equity crowdfunding to $25 million. It will also conside reducing the cooling off period for investors into crowd‑sourced equity funded projects to 48 hours.

Comprehensive credit reporting (CCR)

Access to this would help facilitate the development of peer‑to‑peer lending products and marketplaces and provide lenders with more information to identify a customer’s true credit capacity, enabling better lending practices.

The Productivity Commission will consider the up‑take of CCR as part of its inquiry of data accessibility.

Picture: Warner Bros.

Greater availability of data

In line with the Public Data Policy statement, data.gov.au is now the central place for all non‑sensitive government data.

It offers free access to public data – fees only apply for access to specialised data services – and will support private sector innovation to create new products and business models, as well as inform government policy making and service delivery.

The Productivity Commission will examine the benefits and costs of improving availability and the use of data across the economy, as well as options for standardising the collection, sharing and release of data as part of its inquiry.

Regulatory environment that enables innovation

This is what the government is calling “a regulatory sandbox”, which is essentially a safe space for innovation, within which the consequences of failure can be contained and innovation can flourish.

The government has been working with the Australian Securities and Investments Commission (ASIC) on this, which once up-and-running could see Australia become a leading market for fintech innovation in Asia.

ASIC already has well‑established policies in place to grant waivers (or relief) from the law to facilitate business for startups.

“At a minimum, the existing flexibility and responsiveness of our regulatory arrangements can help reduce the regulatory barriers, and the cost of licensing for new businesses and products entering the market,” the statement reads.

ASIC’s Innovation Hub, established in April 2015, also helps fintech startups navigate the regulatory laws by providing informal guidance from senior regulatory advisers.

Technology neutrality in financial regulation

As part of the government’s response to the Financial System Inquiry, it is working to ensure that all areas of existing financial regulation are technology neutral, as well as ensuring all the same consideration is made to future legislation and regulations. It calls this “RegTech”.

Doing so will help businesses to adopt approaches that are best suited their company, as well as ensuring that regulators can easily adapt their oversight to take account of the development of new technologies.

Guidance on robo‑advice

Clear guidance on the compliance obligations for “robo‑advice”, the term coined for automated financial advice, is still being worked on.

The government is working with ASIC to determine necessary updates to current guidelines to include the specific issues unique to robo‑advice, improve compliance and reduce unintentional breaches of the regulations.

Digital currency — GST treatment

Currently consumers are “double taxed” when using digital currency to buy anything already subject to GST, so the government to address this issue, which includes the use of Bitcoin, and will work with the industry on legislative options to reform the laws to ultimately facilitate further developments or use in the future.

As it stands, there are more than 600 digital currencies available, with different protocols for transaction processing and confirmation, and with different approaches to the growth in the supply of digital currency units.

Blockchain technology

The government has backed the ASX which is exploring Blockchain technology (explained here) for a new post‑trade solution for the Australian equity market.

While it is in the early stages of development, the technology has the potential to radically simplify the way our market operates end‑to‑end, with significant benefits to investors, participants, regulators and government agencies.

Government procurement and service delivery (ProcTech)

The potential impact of fintech on government procurement is being referred to as “ProcTech”. This can help encourage innovation, entrepreneurship and more efficient investment, providing greater value for tax payer money and potential savings that can be re‑directed into vital services.

According to the latest Department of Finance report, there were over 69,000 Commonwealth Government procurement contracts valued at $60 billion in the 2014–15 financial year.

The Commonwealth is currently looking to innovative fintech solutions to foster diversity, choice and responsiveness in government services.

Photo: Patrick Lux/Getty Images.

Cyber security

The government has pledged $30 million through to 2019–20 to establish a new industry‑led Cyber Security Growth Centre to grow and strengthen Australia’s cyber security industry.

The Cyber Security Growth Centre will facilitate improved engagement between research and business, improved access to global supply chains and international markets, improved management and workforce skills, and regulatory reform.

Domestic non‑AUD settlements

New payment fintech firms require cost effective access to non‑AUD settlement infrastructure. This ensures that they operate with the acquiescence of a foreign bank/ custodian authorised deposit taking institution that may not be disposed to servicing either a disruptor, or non‑resident entity with a particularly complex risk profile. Improving access will lead to improved opportunities for Australian FinTech, and better consumer outcomes.

Insurance

Better information through big data can transform daily interactions by consumers with financial products and services, especially emerging insurance model such as micro‑insurance and quasi insurance.

Here’s how the government explains it.

“Take car insurance for example, where most policies are purchased on an annual basis based on an estimate of our risk profile as a driver. FinTech allows the maker of a navigation device to partner with insurance companies. This would allow bespoke and personalised policies on demand based on a proposed route. The insurance premium would then take into account if the proposed route took a high accident route or a quiet street. Rather than insuring an asset over a fixed period of time, technology presents a different way of underwriting risk,” the report reads.

Along with the list of priorities the Turnbull government plans to work with the fintech industry on further reforms to:

  • Allow all companies regardless of assets and turnover to be eligible for Equity Crowdfunding
  • Remove cooling off periods and allow platforms to use their discretion to cancel an investment for legitimate reasons
  • Review Australian Market Licence (AML) requirements for crowdfunding intermediaries

From here the government will continue to work with the fintech industry, as well as with the states and territories, to ensure Australia’s current competitive advantage is capitalised on.

To do so it has established the FinTech Advisory Group, chaired Craig Dunn, who is also the chairman of Stone & Chalk, director of Westpac Bank and former CEO of AMP.

Stone & Chalk CEO Alex Scandurra said that it was “encouraging to see the political resolve to ensure that a number of key levers are pulled and implemented in 2016. We must now work to get these policies activated swiftly and effectively. The world is not waiting for Australia, and if we intend to catch the global wave of fintech disruption we need to move quickly.”

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