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The Department of Home Affairs has issued its draft guidance “Modern Slavery Act 2018: Draft Guidance for Reporting Entities” (Draft Guidance) for the new Modern Slavery Act 2018 (Cth) (the Act).
Following the fintech focus in the Federal Budget released in early May 2017 (see our update here), regulators have provided guidance on a range of issues relevant to the sector. These include:
While not discussed in this update, Data61, a government research agency, recently released two reports discussing design and use cases for smart contracts, blockchain and other distributed ledgers in Australia. These reports discuss both the benefits and risks that accompany these innovative technologies. The reports address matters that may play a significant role in influencing future policy in these areas and should be considered when designing smart contracts and distributed ledgers in Australia.
In this issue you will find:
Fintech fact: China has the largest credit market in the world facilitated by the fintech sector (USD 99.7 billion in 2015), the largest markets are those in the United States (USD 34.3 billion) and the United Kingdom (USD 4.1 billion).
The Australian Securities and Investments Commission (ASIC) has recently released:
This report summarises a variety of regulatory developments previously announced in relation to the Innovation Hub. Importantly, it notes that the entire framework relating to the regulatory sandbox will be reviewed in 2017-18, when ASIC will seek further feedback from industry and stakeholders. This will present a useful opportunity to offer views to ASIC on how the flexibility offered by the regulatory sandbox, including the class order licensing exemption, can be maximised.
The report also sets out ASIC’s position in relation to the regtech industry, following the introduction of regtech to the Innovation Hub in 2016 and the hosting of a regtech roundtable earlier this year. The report includes a summary of topics discussed at the regtech roundtable, including key risks identified by participants. The report discusses the enormous potential of regtech to help organisations build a culture of compliance, identify learning opportunities, and save time and money relating to regulatory matters.
In the report, ASIC outlines the following proposals to facilitate the development and implementation of regtech solutions:
ASIC welcomes feedback on its future approach to regtech, particularly on the proposed initiatives outlined above. The deadline for feedback is 4 July 2017.
ASIC has released the results of its first survey of nine marketplace lending providers. The survey respondents included five registered managed investment schemes and four unregistered schemes, with all participants operating via an online platform and holding an Australian financial services licence. Key findings include:
ASIC intends to conduct this survey periodically to identify changes in the level of activity of lenders, potential risk indicators and to consider whether marketplace lending providers are managing these risks adequately.
The Senate Economics Reference Committee has published a report on the Superannuation Guarantee (SG) system. In Australia, if an employee is over 18 and earns over $450 per month, the employer is obliged make SG contributions. The amount of SG that an employer is required to pay is currently 9.5 per cent (set in July 2014) of the employee's salary or wages less bonuses, overtime and termination payments related to unused annual leave.
The Committee’s Report made recommendations that included digitising the current system to “fully utilise” technological capabilities. The intention is to enable a greater focus on proactive methods and increase efforts to detect and remedy non-compliance. Broadly, the digitisation recommendations include:
These recommendations, which legislative and regulatory changes may deliver, illustrate potential opportunities available to fintech businesses in superannuation. If these recommendations are implemented, they may go some way to improving financial literacy and financial planning for employees by introducing real-time monitoring of SG contributions for the first time. This could also deliver a significant cultural shift around how Australians monitor and engage with their superannuation, reflecting the diffuse benefits which fintech solutions can deliver.
The Australian Prudential Regulation Authority (APRA) has acted on a key recommendation from ASIC’s Report 498 Life insurance claims: an industry review by issuing a discussion paper outlining its proposal to obtain “better quality, more consistent and more transparent data” in relation to life insurance claims.
There are currently gaps in life insurance claims data reporting in the following areas: the number of claims received (including how claims are dealt with), disputed claims and timeframes for responding to claims. The life insurance claims data collection is a joint initiative of APRA and ASIC, with data collected by APRA under their powers being made available to ASIC. Separately, ASIC will also collect data around policy replacements, lapses, clawback amounts, premium changes and policies in order to both monitor and enforce the life insurance remuneration reforms enacted earlier this year.
The discussion paper contemplates a two phase process for data collection. Those phases involve a pilot collection of data to continue into 2018 involving multiple collections and incremental refinements to the data requested (Phase 1), and, secondly, ongoing collection and publication of credible, reliable and comparable data, including publication of entity-level data (Phase 2). The discussion paper seeks feedback on the five topics below:
While data providers will have views on the proposed method of data collection (including whether a suitable industry-led model could be developed), it is important that potential data users also make submissions to ensure that the data obtained by APRA is of material use. It may also be advantageous if a particular technology solution could be arrived at for the purpose of data reporting. The discussion paper is open for comment until 11 August 2017.
The Australian Competition and Consumer Commission (ACCC) has released its eighth annual Targeting Scams report, which explains key trends in scam activity and highlights the impact of scams on the broader community. It is a useful reminder of the intersection between scams, technology and commerce. Key findings include:
In turn, the ACCC has found increasingly innovative ways to counter scammers. The ACCC is currently utilising financial intelligence to identify and warn high-risk targets of scams. The ACCC has also developed better scam prevention schemes in conjunction with business enablers, such as financial institutions, telecommunication providers and social media networks.
The report is a helpful reminder of the risks that accompany operating a fintech business and, particularly, responding to increasing cyber risks. In this regard, ASIC provided regulatory guidance late last year setting out its expectations for minimum standards for managing cyber risk.
On 11 May 2017, the European Parliament and European Commission hosted a “Spotlight on Blockchain” workshop, discussing the future of blockchain regulation in the region. With representatives from Parliament, financial enterprises, academia and blockchain businesses, the workshop examined platform security and use cases for the technology. Prioritising the generation of a comprehensive policy around blockchain development for the future, participants suggested the adaptation of existing regulations to new terminology as a crucial first step.
The workshop is part of the Blockchain Observatory, a European Commission initiative dedicated to understanding the role of authorities in developing and promoting adoption of distributed ledger technologies, and developing expertise on infrastructure, interoperability, governance, and regulatory and legal challenges.
The Commodity Futures Trading Commission (CFTC) has announced the formation of LabCFTC to better engage with the fintech industry. The CFTC regulates derivatives markets in the US exercising oversight of markets, market infrastructure, clearing and settlement facilities. LabCFTC has two limbs:
These initiatives are indicative of global trends towards regulatory outreach to the fintech sector, other examples being ASIC’s Innovation Hub and the Office of Innovation established by the Office of the Comptroller of the Currency (a bureau within the US Treasury responsible for national bank regulation).
This joint report of the Committee on the Global Financial System and the Financial Stability Board Financial Innovation Network is a study of fintech credit markets, assessing the current size, growth and nature of these markets. It considers the benefits and risks of these activities, including possible implications for financial stability. Key findings include:
The report is generally positive about the growth in fintech credit activity but does discuss the potential challenges that accompany transition to this new form of credit activity.