In this article, I will take a look at some of the fintech priorities that have been identified as key to the transformation of Australia into a leading fintech player.
Crowdfunding
Following the release of its Crowd-sourced Equity Funding Bill into Parliament in December 2015, the government has again emphasised the emerging importance of crowdfunding to Australian start-ups, and included the development of an Australian crowdfunding framework as a key fintech priority.
The government has foreshadowed the future expansion of this framework (following passage of the Bill) to allow all companies, regardless of assets and turnover, to be eligible for crowdfunding, while the statement also contemplates the removal of cooling-off periods, and a review of Australian Market Licence requirements for crowdfunding intermediaries.
Regulatory sandbox
The statement notes that ASIC intends to develop a ‘regulatory sandbox’ offering for Australian fintech start-ups to help innovators overcome regulatory uncertainty and costs.
This concept, which would follow a lead proposed by other jurisdictions, including the UK, aims to facilitate communication between start-ups and regulators, and to reduce the complexity and burden that is posed by Australia's financial services laws.
The Australian government has identified ASIC's existing waiver (relief) powers as a basis for developing and ensuring ongoing flexibility and responsiveness from the regulator, and the easing of regulatory burden – in particular, during the development/testing stage of their financial products – will be warmly welcomed by start-ups.
Data collection
The government has asked the Productivity Commission to consider and report on how to increase data availability to boost innovation in Australia, which is seen as crucial in helping innovators to develop better consumer outcomes.
The aggregation of financial data and government support for standard open-data application programming interfaces is seen as especially important to fintech innovators, who are looking to develop products to help Australians better manage, understand and maximise their finances (including, for example, through the development of concepts such as marketplace lending).
Data and privacy issues remain hot topics in Australia, especially in the fintech context, where that data often includes sensitive financial information.
Blockchain
The statement also recognises the emergence of Blockchain, and welcomes the announcement from the ASX that it intends to introduce Blockchain technology to its clearing and settlement process.
Blockchain is a distributed database that maintains a list of data records which is continuously growing.
The database is hardened against any tampering and its most widely known application is the public ledger of transactions for Bitcoin.
Fintech start-ups are generally deprived of ready access to settlement and payment platforms.
Accordingly, the government intends to provide these entities with better access to this infrastructure – although it is as yet unclear what this will look like in practice.
Tax concessions
Tax is always a key – and often a determinative – factor in the development of any business.
Start-ups are no different, and the government is attempting to support the fintech industry through changes such as tax concessions for venture capital investments in start-up fintech companies.
The government has also sought to prioritise the current GST treatment afforded to digital currency, which can lead to consumers in some cases being hit with ‘double-GST’.
The removal of taxation barriers, such as this double taxation, will assist Australian digital currency transactions to become more competitive with both fiat-based competitors and international Bitcoin-based competitors.
Robo-advice
One of the most important issues yet to be addressed in the current financial services industry is the regulation of digital financial product advice (often referred to as ‘robo-advice’).
Robo-advice is financial product advice that is not provided by a person and instead relies upon an algorithm which considers a person's circumstances – often based on complex data analytics – and then generates the advice.
The government recognises the potential benefits of robo-advice, and aims to create a robo-advice sector, where consumers can easily access good quality financial advice at a low cost.
ASIC has issued a draft regulatory guide (CP 254), which raises a number of issues associated with robo-advice, and is currently seeking feedback from participants and advisers in the industry as to how it should deal with issues including:
(a) the organisational competence obligation that applies in a digital advice context; and
(b) the ways in which digital advice licensees should monitor and test their algorithms.
Comments on CP 254 are due by 16 May 2016.
Cyber security
The statement again emphasises the importance of cyber security to the fintech sector, and reaffirms the government's commitment to create an industry-led Cyber Security Growth Centre.
As a market that is currently worth more than US$71 billion globally, the cyber security market is seen as a key opportunity for Australian innovators.
Conclusion
The government's continued focus on innovation and, in particular, the fintech sector is encouraging.
The statement released by the Treasurer serves as a useful roadmap of government priorities and likely reforms, and further announcements can be expected over the coming months, particularly as we head into the election cycle.
What is clear, however, is that there has never been a more exciting time to be a fintech start-up in Australia.
Astrid Raetze is a partner at commercial law firm Baker & McKenzie.
