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Fintech Update: September 2018
There have been a number of significant developments in the fintech landscape over the past month that are likely to have an ongoing impact on businesses and consumers.
Prior to the recent political shake-up, the Government committed to providing the Australian Securities and Investments Commission (ASIC) with an additional $70 million in funding to bolster ASIC’s enforcement capabilities to combat misconduct in the financial services industry. Consistent with this commitment, $6 million was directed to promote Australia as being in the vanguard of regulatory technology adoption in the financial services industry and Kelly O’Dwyer (the former Minister for Revenue and Financial Services) emphasised in her address to the Financial Services Council Summit that the Government would be pursuing a comprehensive reform agenda to improve the fairness of Australia's financial system.
With the announcement of the new Cabinet and no replacement minister for revenue and financial services appointed, the Australian Financial Conduct Authority (AFCA) (see past updates here) has clarified that it will report to Liberal senator and newly-appointed Assistant Treasurer, Stuart Robert. Following consultation and feedback, ASIC has approved the AFCA Rules and the Terms of Reference of the AFCA Independent Assessor.
Notably, no appointments have been made for the replacement of the innovation and cyber security ministers. However, during his tenure as Treasurer, Scott Morrison, now the current Prime Minister of Australia, supported innovation-based policies and has been influential in seeking to increase competition in sectors such as banking and fintech generally. The new Minister for Industry, Science and Technology, Karen Andrews, has also indicated that the Government will seek to further define innovation across a broad scope of portfolios to encourage everyday Australians to embrace innovation – in keeping with the new 2018 National Financial Capability Strategy.
Apart from political aspects, the following are noteworthy developments for the fintech sector:
- Government extends crowdfunding legislation to proprietary companies: The Government has passed the Corporations Amendment (Crowd-sourced Funding for Proprietary Companies) Bill 2017 (Cth) extending the application of the existing crowdfunding framework to proprietary companies. Proprietary companies will have increased governance and reporting requirements imposed (see past update here). The legislation will take effect in 28 days’ time from 12 September.
- Government consults on Treasury Laws Amendment (Consumer Data Right) Bill 2018: The Government has released exposure draft legislation and accompanying explanatory materials to consult on the implementation of the Consumer Data Right (CDR) as per the recommendations of the Review into Open Banking in Australia (see here and here for past insights). Under the suggested amendments, the Australian Competition and Consumer Commission (ACCC) would be empowered to make consumer data rules to determine the application of the CDR to each sector. Significantly for incumbents and fintechs, the CDR will include minimum privacy safeguards to protect consumer data that modify the application of the existing relevant Australian Privacy Principles where required.
- Government releases Productivity Commission (PC) Inquiry report on competition in the financial system: The PC Inquiry report on Competition in the Australian Financial System has been released. The report considers the provision of financial services by market participants, the issues facing consumers and the impact of regulatory activity. Broadly, the report notes that technological innovation has been beneficial for the financial services sector but the market power of key players as a result of established presence, integration, consumer inertia, regulatory arrangements, and funding and operational advantages has ensured that competition has been constrained. The report recommends that the ACCC should be tasked with advocating for competition inside regulator forums where financial system regulatory interventions are decided.
- APRA clarifies use of restricted terms under Banking Act: The Australian Prudential Regulatory Authority (APRA) has updated its guidelines on the use of restricted terms such as “bank” and “authorised deposit-taking institution” (ADI). Words or expressions of similar meaning to restricted terms, such as ‘neobank’ are also restricted.
- APRA proposes changes to ADI capital framework: APRA has released a discussion paper on improving the transparency, comparability and flexibility of the ADI capital framework. The paper proposes amending disclosure requirements and the way that ADIs calculate and report capital ratios to aid ADIs in communicating their capital strength on an international level. APRA has indicated that it intends to consult on draft revised prudential standards incorporating the outcome of this consultation in 2019.
- ASIC consults on Global Financial Innovation Network (GFIN): In collaboration with 11 international financial regulators and related organisations, ASIC has opened consultation on the proposed creation of GFIN to assist with regulatory co-operation, joint policy work and the trialling of cross-border solutions. Feedback is due by 14 October 2018.
- Asia Region Funds Passport Regulations registered: The Corporations Amendment (Asia Region Funds Passport) Regulations 2018 (Cth) were registered, and make the requisite amendments so as to implement the Asia Region Funds Passport in Australia (see past updates here). The amendments include but are not limited to updating the particulars included on ASIC’s registers and ensuring that the disclosure requirements for foreign passport funds products are the same as those that currently apply to managed investment products.
- World Economic Forum (WEF) releases report on impact of artificial intelligence (AI) on financial services: The WEF has released The New Physics of Financial Services – How artificial intelligence is transforming the financial ecosystem. Generally, the report suggests that the implementation of AI will differentiate institutions to consumers with future customer experiences to revolve around AI, which will also reduce search and comparison costs. However, AI usage will require an examination of supervisory techniques with respect to ethics and regulatory uncertainty associated with more transformative AI.
- Digital currency and distributed ledger technology (DLT) developments: There have been a raft of developments in Australia and overseas in relation to both digital currency and DLT. Click to read more here.
Fintech Fact: While the majority of consumers today still trust their bank with their personal data, as the ‘digital generation’ enters the workforce, this is likely to change. For example, in the UK, 54% of consumers aged 54-64 would not trust anyone to aggregate their personal account information, but in consumers aged 18-24, only 15% do not trust personal data aggregators.