ASIC just gave fintech startups the green light they've been looking for

Child playing in sandbox at a temporary home providing assistance for refugees on August 6, 2015 in Berlin, Germany. (Photo by Adam Berry/Getty Images)

Fintech startups have been asking the Australian corporate regulator for a break, and they just scored big time.

The Australian Securities and Investments Commission on Thursday announced “class waivers” that let certain fintech businesses to test specific products without holding an Australian financial services or credit licence.

ASIC commissioner John Price said the new licensing exemptions, which effectively provide a sandbox environment for companies starting out in the financial sector, are internationally unique.

“No other major jurisdiction has implemented a class waiver which allows eligible businesses to notify the regulator and then commence testing without an individual application process,” he said.

The licensing exemption allows startups that meet certain consumer protection conditions and notify ASIC before commencement of testing to trial specified services for up to 12 months with a maximum of 100 retail customers. There is no cap on the number of wholesale clients and the total customer exposure must be no greater than $5 million.

The terms are more generous than those originally proposed in June, which had six months as the sandbox period.

Products eligible for the sandbox include deposits, payments, certain types of insurance, securities and consumer credit contracts, each with dollar limits. Some services specifically ruled out that startups are active in are marketplace lending platforms and consumer lending.

Chief executive of industry body FinTech Australia, Danielle Szetho, told Business Insider the ASIC announcement was “a good start”, saying red tape involved in licensing can be debilitating for startups.

“We’re pleased that ASIC has taken some steps to give some fintech startups an opportunity to test their new business models in the new regulatory sandbox, without having to go through what is, on average, a six month, $60,000+ process to obtain a license before even testing the proposition with a customer.”

After lobbying from the tech industry, treasurer Scott Morrison proposed in May that a local sandbox be created — a concept that was already in practice in other countries such as the UK. ASIC followed with some criteria in June, but the latest announcement has more liberal eligibility terms.

“We’re happy that ASIC has listened to our requests to extend the testing time, and to broaden the types of products that can be tested in the sandbox,” Szetho said.

However, Szetho added that the exemption criteria could be loosened even further to include more products, citing research from The Fold Legal that just two of the 15 businesses currently testing in the UK sandbox would be eligible for a licence waiver in Australia.

“Also, the fact that international equities are excluded creates situations where digital advice providers have to build a specific product for the sandbox, then change it again once they graduate. The restriction means they’re also providing advice that’s potentially not the best solution for the consumer, either,” she said.

Startups that do not qualify for the sandbox can apply for an individual exemption, although, as the AFR noted, the assessment criteria for such applications are not widely publicised.

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