Over the last month, there have been a range of developments that fintechs and incumbents should carefully consider.
Notably, the Royal Commission’s ongoing investigation into the banking and financial services industry has made numerous findings that will significantly affect the financial services industry going forward. On 28 September 2018, the Royal Commission handed down its Interim Report, seeking to identify core questions arising from the public hearings that will be significant in propelling industry-wide change for both financial service providers and corporate regulators like the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA).
With respect to the corporate regulatory response, the Interim Report commented on the lack of action in response to industry misconduct, noting that misconduct was often unpunished or met with soft penalties. The report highlighted that ASIC rarely took providers to court, and APRA never went to court at all. In response, ASIC Chairman James Shipton welcomed the Interim Report, re-asserting ASIC’s commitment to build “a stronger legislative, enforcement and regulatory framework with tougher penalties”.
Separately, the draft for the Treasury Laws Amendment (ASIC Enforcement) Bill 2018 proposes to update the penalties for certain criminal offences in ASIC administered legislation. ASIC has also released guidance on compliance schemes for financial advisers, which will demand a higher standard of ethics and professionalism among financial advisers. This code of ethics is being developed by the Financial Adviser Standards and Ethics Authority.
In addition to pressures on firms and regulators, ASIC’s Corporate Plan (2018-22) recognises key environmental trends that may impact the structure of the financial services industry, such as greater customer control over data through open banking reforms.
Fintechs should note that the extension of crowdfunding legislation to apply to proprietary companies, Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Bill 2017 (Cth), is now in effect (see past updates here).
The following are also significant developments for the fintech sector:
- Australian Competition and Consumer Commission (ACCC) consults on Consumer Data Right (CDR) rules framework: The ACCC has released a rules framework for consultation, outlining the approach and substantive position the ACCC proposes to take when making rules to implement the CDR. Though the proposals have been designed to apply generally, the ACCC notes that the rules framework has a banking focus due to the impending implementation of the Open Banking regime. Through outlining its approach and position, the ACCC aims to provide transparency prior to the release of draft rules. The ACCC expects draft rules to be published in December 2018. Written submissions are due 12 October 2018. Click here to read more.
- ASIC updates guidance on crowd-sourced funding (CSF): Following news last month that the Government has extended the CSF regime to proprietary companies, ASIC has updated Regulatory Guide 261 Crowd-sourced funding: guide for companies and Regulatory Guide 262 Crowd-sourced funding: Guide for intermediaries to include proprietary companies and update requirements for public companies after consultation. The application of the regime commenced 19 October 2018.
- ASIC updates guidance on managed discretionary account (MDA) services: In 2016, ASIC updated its regulatory guidance for MDA services. In it, ASIC provided MDA providers with two years to transition to the revised requirements including obtaining an Australian financial services licence with an MDA-specific ‘dealing by issue’ authorisation. As of 1 October, all MDA providers should now either have their licence authorisation or have ceased their activities. ASIC has indicated that it will be reviewing MDA providers’ licences and will “take action” if unlicensed activity has occurred.
- ASIC approves Australian Financial Complaint Authority (AFCA) rules: ASIC has approved the AFCA Complaint Resolution Scheme Rules and Terms of Reference of the AFCA Independent Assessor before the scheme’s commencement date of 1 November 2018. Financial firms that deal with retail clients are reminded that they must have joined the ACFA scheme by 21 September 2018.
- ASIC reports on review of the Australian Securities Exchange Limited (ASX) Group’s technology governance and operational risk management standards: ASIC has released a report on the recent review of ASX Group’s management of technology governance and operational risk. Broadly, ASX Group’s practices were more comparable to those of other exchanges in the global financial market infrastructure industry but lagged behind better practices in the broader financial services sector. ASX Group is now undertaking an extensive work program to implement the report’s recommendations. ASIC has noted that the findings and recommendations will be relevant to other ASIC-regulated financial services sector organisations who may need to critically review their own technology governance and operational risk controls.
- ASIC sign fintech cooperation arrangement with US Commodity Futures Trading Commission (CFTC): On 5 October, ASIC and the CFTC signed an arrangement to cooperate and support innovation through each other’s financial technology initiatives – CFTC’s LatCFTC and ASIC’s InnovationHub. The arrangement focuses on sharing information on fintech market trends, encouraging referrals of fintech companies and sharing insights from proofs of concepts and innovation competitions.
- Luxembourg and Australia enter agreement on fintech and regtech: The Luxembourg Commission de Surveillance du Secteur Financier and ASIC signed a cooperation agreement which provides a framework to help each regulator understand financial innovation in financial and regulatory technology in each jurisdiction.
- APRA Chairman speaks on technology-enabled innovation: At the 2018 Curious Thinkers Conference, Wayne Byres, the Chairman of APRA, spoke about regulatory reaction to the sheer pace of change brought about by technology-enabled innovation. Noting that the production and delivery of financial services will inevitably change, the Chairman reinforced APRA’s role as (1) ensuring that regulated entities are adequately managing change and risk, and (2) ensuring that regulation and supervision are fit for the future and can adapt as the financial system and its participants evolve.
- Council of Financial Regulators (CFR) reviews retail payments regulation and stored-value facilities: The CFR has released an Issues Paper for its consultation on the regulatory framework for stored-value facilities such as purchased payment facilities. Broadly, the review aims to, among other things, identify opportunities to simplify the framework such that regulation does not hinder innovation and competition, identify changes necessary for regulatory adaptation in response to technological innovation, and improve the transparency and clarity of regulation. Submissions are due 19 October 2018.
- International developments in digital currency: There have been many developments in relation to digital currency. Click to read more here.
Fintech Fact: Whilst 76% of banking executives in an Accenture survey (April 2018) agreed that adopting artificial intelligence is a critical method of differentiation, they believe that only a quarter of their workforce is ready to work with artificial intelligence.
This knowledge hub collates important articles and legal advice on various aspects of COVID-19 on how it may impact your business.