This article was written by Scott Farrell, Hannah Glass and Roslyn Hinchliffe.
This month the Australian Government legislated to introduce an enhanced regulatory sandbox under Australian financial services and credit licensing laws. This is to enable additional opportunities for testing new businesses as part of the Government's commitment to drive innovation and competition. Commencement awaits new regulations that set out the dimensions and conditions for testing. As yet there is no indication as to when the regulations will be made or what they will contain. Interested parties that are keen to play will need to monitor developments very carefully.
The Australian financial services and credit licensing regime requires entities to hold a licence to carry on certain businesses of providing financial services or credit in Australia. Applying for a licence requires a significant commitment to be made upfront and is, in itself, a considerable investment of time, money and expertise. A "regulatory sandbox" changes this because it allows businesses to accelerate their development of innovative offerings in the Australian marketplace. The regulatory sandbox represents a "safe-place" in which businesses can test new products and services without immediately incurring all of the regulatory consequences of those activities. This is balanced by requiring businesses to comply with alternate measures to protect consumers that choose to participate.
This is not the first regulatory sandbox in the Australian market. In 2016, ASIC introduced a sandbox to the Australian market. Whilst the sandbox has expanded slightly, it is targeted at particular businesses and offerings. However, this sandbox is still available for play. For more detail on this sandbox, please see our previous alert.
In the Government's 2017 – 2018 budget, the Australian Treasurer announced an enhanced regulatory sandbox to enable businesses to test a wide range of new financial products and services without a licence. The bill was introduced into parliament in 2018 for this purpose. Almost two years to the day after it was first introduced, the Treasury Laws Amendment (2018) Measures No.2) Bill 2019 passed both houses and will establish the framework to allow testing of financial products without holding a financial services or credit licence in Australia. No changes were made to the form of the bill first introduced to Parliament.
Whilst the Minister announced that the regulatory sandbox can apply for up to 24 months and will include strong consumer protection mechanisms, this detail is not mandated in the legislation. These and other details (such as what types of entities can participate in, and what types of products and services can be provided), will be set out in regulations which have not been created yet. These details are of course important.
In 2017, the exposure draft of the amendments to the Corporations Regulations proposed that a person could rely on the regulatory sandbox to provide a broad set of financial products and services, such as providing a crowd-funding service, without holding a licence. The exposure draft proposed the following consumer protection measures for the sandbox:
- exposure limitations on:
- the maximum number of retail clients that can participate (i.e.100);
- the amount of money that a retail client may commit to a product or service; and
- the total sum of money that all clients may commit to a provider and its related bodies corporate;
- obligations relating to establishing and maintaining an internal dispute resolution procedure and membership of AFCA;
- obligations relating to holding professional indemnity insurance;
- notification and disclosure requirements;
- best interests obligations; and
- client money obligations.
It remains to be seen whether the draft amendments to the regulations will be altered before they are finalised. There is no indication that there are other draft regulations to be released before they are finalised.
For further insights into reform in the financial services space, please feel free to get in touch with us.