The Global Legal Insights: Fintech in Australia 2023 guide provides legal practitioners with an analysis of the most current Australian laws and regulations regarding fintech.
In this Australian chapter of the GLI, we cover:
- Approaches and developments
- Fintech offering in Australia
- Regulatory and insurance technology
- Regulatory bodies
- Key regulations and regulatory approaches
- Cross-border business
The fintech sector continues to grow in Australia. While the pace of growth has moderated compared to the high levels throughout the 2019 to 2021 period, a level of growth remains. The sector, and the Australian economy generally, continues to face headwinds from lower global growth relating to rising interest rates, uncertainties as a result of the Russia-Ukraine conflict and sustained global supply chain issues.
While the pace of fintech creation, development and adoption may have eased, the Australian fintech community continues to build out its product offerings which has been assisted by the maturing of the Australian policy and regulatory approach. While previous fintech offerings were limited to operating on the periphery of traditional financial services (including lending, personal finance and asset management), the sector has now moved to disrupt the core product offering of many Australian institutional financial service providers, including payments, wallets, wealth and investment, data and analytics and decentralised finance.
As discussed below under the “Regulatory bodies” section, Australian regulators are generally receptive to the growth of the Australian fintech ecosystem, and there has been considerable discussion around the opportunities, risks and challenges that have arisen for market participants, customers and regulators. Australian policymakers and bodies continue to make progress toward regulatory and legislative developments to ensure that the scope of emerging services is adequately captured within the existing financial services framework. Regulators and the Government face the challenge of adapting and aligning existing financial regulation to new products and services, balancing innovation with consumer protection. Regulators such as the Australian Securities and Investments Commission (ASIC), Australian Prudential Regulation Authority (APRA), and the Australian Transaction Reports and Analysis Centre (AUSTRAC) have become more proactive on licensing, conduct and disclosure, and have taken a more rigorous approach to enforcement. In particular, ASIC has become significantly more active in regulating crypto assets and enforcing appropriate product disclosure obligations in relation to the design and distribution of financial products that include crypto assets (and generally). In light of the turbulent events in the crypto asset industry (such as high profile failures of crypto exchanges and international regulatory actions in the fintech sector), ASIC has ramped up its regulatory response particularly where ASIC alleges that businesses are providing financial services without the requisite licences.
In recent years regulatory change in the financial services sector has included prioritising the interests of consumers, reforming conflicted remuneration structures and changing the way add-on products are distributed. The resulting changes to the provision and distribution of financial products has seen fintechs – particularly those that are motivated to provide financial services in a way that is more convenient, personalised and simplified for consumers – being well placed to seize the opportunity and take market share away from incumbent providers.
The Australian Law Reform Commission (ALRC) is conducting an inquiry into simplifying Australia’s financial services regulatory framework to make it “more adaptive, efficient and navigable for consumers and regulated entities”. As part of the inquiry, the ALRC has provided interim reports on three areas, being the design and use of definitions in corporations and financial services legislation, the regulatory design and hierarchy of laws, and the potential to reframe or restructure Chapter 7 of the Corporations Act 2001 (Cth) (Corporations Act) (i.e., the overarching financial services laws). All three interim reports have now been released, with the consolidated final report due on 30 November 2023.
The COVID-19 pandemic has accelerated the adoption of digital wallets, contactless payment solutions and alternative payments solutions. Recognising that such solutions are growing beyond the scope of current regulation, there are a raft of consultations underway. The Council of Financial Regulators (comprising Australia’s major financial regulators) has made recommendations for a new framework for stored value facilities (i.e., digital wallets that are widely used as a means of payment and store significant value for a reasonable amount of time) to be overseen by APRA, Australia’s banking regulator. In 2021, The Reserve Bank of Australia (RBA) undertook a holistic review of the regulatory framework for card payments, with its report released in October 2021. The Australian Treasury (Treasury) also undertook a simultaneous review of the overall regulatory architecture of the Australian payments systems, closing its consultation on 6 February 2023 in relation to the Government’s Strategic Plan for the Payments System, which sets a reform agenda including updating the Payment Systems (Regulation) Act 1998 (Cth) (PSRA) to capture the full suite of payment entities and systems, and implementing a tiered licensing framework for payment service providers.
In 2021, Treasury released a Consultation paper “Crypto asset secondary service providers: licensing and custody requirements”, which proposed alternative licensing and custody regimes and requirements for crypto asset secondary service providers (CASSPrs). Following these consultations and a change of Government, the much-anticipated Consultation Paper on Token Mapping was released. The Consultation Paper on Token Mapping seeks to identify the key activities and functions of crypto assets and map them against existing regulatory frameworks. Whilst the paper did not include any demonstrative proposals for new regulation, it is considered to be a foundational step in the Government’s intended plans to regulate the crypto sector. The consultation process in relation to Token Mapping closed on 3 March 2023, with the Government indicating that it intends to release a licensing and custody paper for crypto asset service providers in mid-2023.
On 29 March 2023, opposition Senator Andrew Bragg introduced a private members bill, Digital Assets (Market Regulation) Bill 2023 (Digital Assets Bill), which proposes to regulate digital assets, including by introducing licensing requirements for digital asset exchanges, digital asset custody service providers and stablecoin issuers. The Digital Assets Bill also proposes to introduce disclosure requirements for facilitators of central bank digital currencies in Australia. The proposed licensing framework draws on familiar processes and requirements that already exist for Australian financial services licence (AFSL) and Australian Credit Licence (ACL) holders. While the Digital Assets Bill represents a tangible attempt at specific legislation in the crypto space, the Digital Assets Bill was not introduced by the current Government and is a private member’s bill introduced by Senator Bragg.
The regulatory activity in the fintech space during 2022 and 2023 demonstrates the continued focus on the sector. ASIC has announced that it intends to target sustainable finance practices and disclosure of climate risks, financial scams, cyber and operational resilience, and investor harms involving crypto assets throughout 2023.
The past few years has seen sustained attention on blockchain technology and a growth in interest in the technology by established businesses in the financial services sector. In particular, there has been growing interest in how decentralisation and new governance models such as decentralised autonomous organisations (DAOs) can operate and be regulated. It is expected that further clarity on the application of the Australian regulatory regime to such models will come in due course. The year 2020 saw the launch of the new national Consumer Data Right (CDR) framework, initially applied to the banking sector under the “Open Banking” regime. The CDR enables consumers to exercise greater access and control over their banking data. A recent expansion of the CDR now means that consumers and businesses can instruct third parties to initiate actions on their behalf and with their consent. It is anticipated to have a profound effect on the financial services industry by encouraging customers to switch service providers and open the market to new fintech businesses.
The Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Act 2019 introduced a design and distribution obligation (DDO) for financial services firms as well as a product intervention power (PIP) for ASIC. The new DDO regime came into effect in 2021 and requires product issuers to ensure products are targeted and offered to the appropriate customers. ASIC has held its PIP since 2019; however, it has only recently commenced intervening in the distribution of products that it considers as carrying a risk of significant consumer detriment. ASIC issued its first DDO stop orders in July 2022 in response to deficiencies in target market determinations (TMDs) made under the DDO regime. Between July 2022 and June 2023, ASIC issued 41 stop orders to prevent consumers and investors being targeted by products that may be inappropriate for their objectives, financial situation and needs. More than ever, it is crucial for financial service providers, including fintechs, to consider the suitability of products and disclosure documents for their own customer base.
Fintech businesses have been disrupting the Australian banking, investment and wealth management, payments, advisory, trading and fundraising sectors through offers of alternatives to the relatively concentrated traditional providers of these financial services. These alternative offers generally focus on providing financial services in a way that prioritises customer experience and outcomes, utilises technology solutions such as apps and smart devices in the delivery of financial services, or disintermediates the provision of financial services.
Fintech businesses must comply with all existing laws and regulations for financial services and consumer credit activities in Australia. The Government has taken steps to alleviate the regulatory burden on fintechs looking to test the Australian market prior to a full product or service launch. See the “Key regulations and regulatory approaches” section below for further discussion.
Regulatory guidance has also been updated to address the fintech sector. For example, ASIC has released specific guidance clarifying the licensing, conduct and disclosure obligations that apply to the provision of digital financial product advice. This includes requiring the nomination of a person within the business who understands and will be responsible for the ongoing monitoring of the algorithms used to produce advice.
ASIC has clarified how Australian financial services laws may apply to a range of cryptocurrency offerings, whether through initial coin offerings or security token offerings as an alternative funding mechanism, non-fungible token offerings or fund offerings with cryptocurrency assets. In summary, the legal status of these offerings depends on the structure, operation and the rights attached to the tokens offered. For more information on ASIC’s current regulation of cryptocurrency assets, please see above in the “Approaches and developments” section. Issuing tokens may trigger licensing, registration and disclosure requirements if the tokens are financial products (e.g., interests in managed investment schemes, securities, derivatives or non-cash payment facilities). From a regulatory guidance perspective, ASIC has released INFO 255 Crypto-assets (INFO 225) to assist businesses involved with cryptocurrency or providing cryptocurrency-adjacent services. INFO 225 covers regulatory considerations for cryptocurrency offerings, misleading and deceptive conduct, trading platforms and cryptocurrency offered via a regulated investment vehicle.
Blockchain technology continues to capture the attention of established businesses, and there is now an awareness of decentralised finance and its potential implications. In the past couple of years, Australia has witnessed the application of Distributed Ledger Technology (DLT) in solutions across a broad range of financial market operators, financial institutions, financial service providers and fintechs, which has prompted new regulation. Given the rapidly evolving blockchain sector (particularly as institutional businesses move from observational practices to implementation), regulators have generally maintained a technology neutral stance to the application of the law and regulation. In addition to recent reviews being undertaken (see payments review “Approaches and developments”), over the past few years, there have been numerous framework developments to lower barriers to entry for fintech providers.
In 2018, ASIC introduced a two-tiered market licensing regime for financial market operators and updated its corresponding regulatory guidance. Specifically, the guidance reflects a risk-based assessment that will be undertaken, which is consistent with the approach taken internationally to the administration of market licensing. Under the revised Australian Market Licence regime, market venues can be designated as being either Tier 1 or Tier 2, depending on their nature, size, complexity and the risk they pose to the financial system, investor confidence and trust. While Tier 1 market venues are, or are expected to become, significant to the efficiency and integrity of (and confidence in) the Australian financial system, Tier 2 licences will be able to facilitate a variety of market venues and will have reduced obligations to accommodate new and specialised market platforms. The tiered market regime is expected to impact, amongst others, market operators and operators of market-like venues, as well as platforms seeking to offer secondary trading.
The Australian banking sector is highly regulated with stringent licensing, conduct (including reporting) and regulatory capital requirements which act as significant hurdles for new businesses entering the market. Any entity that conducts any “banking business”, such as taking deposits (other than as part-payment for identified goods or services) or making advances of money, must be licensed as an authorised deposit-taking institution (ADI). To lower barriers to entry, APRA introduced a Restricted ADI framework which permits new businesses entering the banking industry to conduct a limited range of banking activities for two years while they build their capabilities and resources. After such time, they must either transition to a full ADI licence or exit the industry. Since then, various “neobanks” (which are wholly digital quasi-banks that provide full banking services to customers via a solely mobile platform) have progressed through the Restricted ADI route and granted full ADI licences.
Fintech businesses will generally have obligations under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act) and Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No.1) (AML/ CTF Rules). The AML/CTF Act applies to entities that provide “designated services” with an Australian connection. To address the rise of cryptocurrency offerings, the AML/ CTF Act also captures crypto asset exchange providers, which must register and enrol with the AUSTRAC. Registered exchanges are required to implement know-your-customer processes to adequately verify the identity of their customers, adopt and maintain an AML/ CTF Program, as well as meet ongoing obligations to monitor and report suspicious and large transactions.
On 20 April 2023, the Attorney General released proposed reforms to the AML/CTF Act. The reform package accepts all recommendations made by the Senate Legal and Constitutional Affairs Reference Committee Inquiry into the Adequacy and Efficacy of Australia’s AML/CTF Regime and proposes the extension of the AML/CTF Act to “tranche-two entities”. These reforms would result in lawyers, accountants, trust and company service providers, real estate agents and dealers in precious metals and stones coming within the scope and operation of the AML/CTF Act. The proposed model also recommends expanding the regulation of services provided by crypto asset exchanges from the exchange of digital crypto assets for fiat currency and vice versa to also include:
- exchanges of a crypto asset for another crypto asset;
- transfers of crypto assets on behalf of a customer;
- safekeeping or administration of crypto assets; and
- the provision of financial services related to an issuer’s offer and/or sale of a crypto asset (e.g., initial coin offerings).
The consultation also proposes expanding the travel rule to remittance service providers and crypto asset exchange providers, in line with international standards, being the capture of information about the originator and beneficiary of transfer. Consultation on the reforms closes on 16 June 2023, and a second consultation paper is expected.
Buy now, pay later (BNPL) has continued to be a growth area. Many BNPL providers operate outside the Australian credit licensing regime on the basis of exemptions. This has given rise to calls to action with respect to BNPL industry regulation and in 2020, ASIC undertook a review of the industry, reporting on the impact on consumers and upcoming regulatory developments. In November 2022, Treasury released its consultation paper on a proposed regulatory framework for BNPL providers in Australia (BNPL Consultation Paper). The BNPL Consultation Paper followed a series of targeted consultations by Treasury to identify the impacts of BNPL, particularly those contributing to what Treasury considers to be poor consumer outcomes. Such outcomes include unaffordable lending practices, poor complaints handling processes, excessive or disproportionate consumer fees and charges, poor disclosure, unsolicited selling practices and non-participation in the credit reporting framework. The Consultation has now closed, with Treasury now considering the future regulatory framework for BNPL arrangements under the Credit Act. While the Government still considers appropriate regulation for BNPL and in reaction to various consumer concerns, the Australian Finance Industry Association (which includes a range of BNPL providers in its membership) drafted a voluntary BNPL Code of Practice (BNPL Code), which came into effect on 1 March 2021. The BNPL Code sets out nine Key Commitments regarding how BNPL products are to be designed and distributed to consumers and has been adopted by an estimated 95% of the Australian BNPL market.
Businesses have continued to explore new automated service methods including the use of robo-advisors for distributing financial advice. There has been sustained attention on blockchain and DTL to the extent that fintechs have begun formalising use cases for DLT to manage supply chains, make cross-border payments, trade derivatives, and manage assets and crypto asset exchanges.
The rising cost of compliance has prompted many companies using artificial intelligence (AI), customer due-diligence (e.g., “know-your-customer”) and data breach monitoring (e.g., “know-your-data”) technologies to invest in regulatory technology, or regtech. Both ASIC and AUSTRAC have established Innovation Hubs to assist start-ups in navigating the Australian regulatory regime.
ASIC has indicated the benefits of regtech to provide better outcomes for consumers and has hosted annual fora for collaboration between businesses and to promote stakeholder engagement. It has also been reported that ASIC has actively encouraged incumbent financial institutions to partner with fintechs to harness regtech to automate regulatory reporting, manage compliance and ensure clarity to how regulation is interpreted.
ASIC has undertaken five regtech initiatives:
- a machine-learning trial to help ASIC identify potential misconduct in financial services promotions to vulnerable consumers (in response to COVID-19);
- engaging a regtech consultancy firm to deliver an organisation-wide voice analytics operational framework to incorporate into supervisory and investigative projects involving audio file reviews;
- a proof-of-concept project that aimed to automate data flows and report matters of interest to improve licensing and misconduct and breach reporting processes;
- a first-phase natural language processing application to extract core prospectus information for supervisory analysis; and
- engaging regtech consultants to develop an enhanced evidence score capability in relation to ASIC’s evidence document system.
AUSTRAC also recognises that regtech plays an important role in assisting reporting entities to meet their AML/CTF obligations and provides general guidance about AML/ CTF regulation through the AUSTRAC RegTech Engagement (ARTE) programme. It has also published fact sheets for regtechs and reporting entities considering engaging regtechs.
Investments in insurance technology in Australia have increased, with companies and fintechs focusing on forging cross-sector alliances in order to embed their offerings into alternative value propositions. Insurance technology has the potential to disrupt individual sections of the insurance value chain, augment the existing processes of underwriting risk and predicting loss, and improve the existing capabilities of insurers, reinsurers, intermediaries and service providers. The increase in partnerships and alliances between insurance fintechs and incumbents with established customer bases will be effective for insurance start-ups to fuel expansion.
There have not been any specific changes to legislation or regulation due to regtech or insurance technology; however, this may change in the future as uptake increases and becomes more mainstream.
Australia has a twin peaks model of regulation with respect to financial services:
- ASIC is Australia’s primary corporate, markets, financial services and consumer credit regulator. It is responsible for regulating consumer protection and maintaining market integrity within the financial system. ASIC supervises the conduct and regulation of Australian companies, financial markets, and financial service and consumer credit providers.
- APRA is concerned with maintaining the safety and soundness of financial institutions, promoting financial stability in Australia and is tasked with protecting the interests of depositors, policy-holders and superannuation fund members. APRA oversees ADIs (e.g., banks, building societies and credit unions), general and life insurers, friendly societies, reinsurers and superannuation funds.
AUSTRAC is responsible for administering Australia’s anti-money laundering and counter- terrorism financing regime under the AML/CTF Act and the AML/CTF Rules. AUSTRAC may pursue a wide range of enforcement sanctions under the AML/CTF Act which include imposing civil and criminal penalties (which can be significant in value), enforceable undertakings, infringement notices, remedial directions, and the power to cancel or suspend registrations of providers of crypto asset exchanges and designated remittance services. AUSTRAC plays an active role in setting and implementing international standards and is a member of regional and global groups such as the Financial Action Task Force (FATF) and the Asia/Pacific Group on Money Laundering.
The Office of the Australian Information Commissioner (OAIC) administers the Privacy Act 1988 (Cth) (Privacy Act) which regulates the handling of personal information by Federal Government agencies and some private sector organisations. The Privacy Act includes 13 Australian Privacy Principles (APPs), which impose obligations on the collection, use, disclosure, retention and destruction of personal information. The APPs extend to an act carried out, or practice engaged in, outside Australia by an organisation that has an “Australian link” (including where it carries on business in Australia and has collected or held personal information in Australia, either before or at the time of the act or practice). In December 2019, the Attorney-General announced that the Commonwealth Government would conduct a review of the Privacy Act to make it “fit for purpose” to “adequately protect Australians’ privacy in the digital age”. Following the release of an Issues Paper in October 2020 and a Discussion Paper in October 2021, on 16 February 2023 the Attorney-General released the Privacy Act Review Report (Privacy Report). The Privacy Report detailed 116 proposals at a principles level, however, no exposure draft of any reform legislation was proposed and many of the proposals are likely to be subject to further consultation. The Government has sought feedback on the Privacy Report, with consultation now closed. It is expected that the Government will now formally respond to the Privacy Report, which will likely indicate which of the 116 proposals will be implemented in amending legislation.
Fintechs may also be subject to the prohibitions in the Australian Consumer Law, which is enforced by the Australian Competition and Consumer Commission (ACCC). Broadly, these include prohibitions on misleading and deceptive conduct, false or misleading representations, unconscionable conduct and unfair contract terms. Whilst the Australian Consumer Law does not apply to financial products or services, many of these protections are enforced by ASIC either through mirrored provisions in the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) or through delegated powers.
The RBA is Australia’s central bank and provides a range of banking services to the Government and its agencies, overseas central banks and official institutions. It is also responsible for maintaining the stability of the financial system through monetary policy and regulating payment systems.
The Fair Work Commission is Australia’s national workplace relations tribunal and is responsible for administering the provisions of the Fair Work Act 2009 (Cth) (Fair Work Act), which governs the regulation of employment in Australia. In relation to hiring, minimum terms and conditions of employment for most employees (including professionals) are governed by modern awards, which sit on top of the National Employment Standards. The Fair Work Commission’s powers and functions broadly include dealing with unfair dismissal claims, anti-bullying claims, unlawful termination claims, setting and reviewing minimum wages in modern awards and making orders to stop or suspend industrial action.
Fintech businesses must comply with the applicable licensing, registration and disclosure obligations under Australia’s financial services regime. Broadly, the regulatory framework that applies to fintech businesses includes financial services and consumer credit licensing, registration and disclosure obligations, consumer law requirements, privacy and AML/CTF requirements.
Fintech businesses carrying on a financial services business in Australia must hold an AFSL or be exempt from the requirement to be licensed. Financial services are broadly defined under the Corporations Act, which is administered by ASIC, to include the provision of financial product advice, dealing in financial products (as principal or agent), making a market for financial products, operating registered schemes and providing custodial or depository services. There are specific things that are listed as financial products (e.g. securities, derivatives and managed investment schemes). Financial products are also defined generally as a facility through which, or through the acquisition of which, a person makes a financial investment, manages a financial risk or makes a non-cash payment. The definitions of financial service and financial product are broad and will generally capture any investment or wealth management business, payment service (e.g., non-cash payment facility), advisory business (including robo-advice), trading platform, and crowdfunding platform.
The Australian credit licensing regime applies to entities who engage in consumer credit activities in Australia, such as providing credit under a credit contract or consumer lease. Fintech businesses that provide marketplace lending products and related services will constitute consumer credit activities and will generally trigger the requirement to hold an ACL. Consumer credit activity is regulated by ASIC and under the Credit Act and associated regulations.
Fintech businesses may also need to hold an Australian Market Licence where they operate a facility through which offers to buy and sell financial products are regularly made (e.g., an exchange). If an entity operates a clearing and settlement mechanism which enables parties transacting in financial products to meet obligations to each other, the entity must hold a clearing and settlement facility licence or be otherwise exempt.
As discussed above in “Fintech offering in Australia”, the AML/CTF Act applies to entities that provide “designated services” with an Australian connection. Generally, the AML/ CTF Act applies to any entity that engages in financial services or credit (consumer or business) activities in Australia. Obligations include enrolment with AUSTRAC, reporting and customer due diligence.
The Banking Act 1959 (Cth) regulates entities engaged in the business of banking and requires those entities to be authorised by APRA (i.e., be an ADI). APRA also administers the Banking Executive Accountability Regime (BEAR), which establishes, among other things, accountability obligations for ADIs and their senior executives and directors, and deferred remuneration, key personnel and notification obligations for ADIs.
Generally, fintech businesses that operate as holders of stored value in relation to purchased payment facilities under the Payment Systems (Regulation) Act 1998 (Cth) are required to be an ADI unless otherwise exempt (see above the “Fintech offering in Australiaˮ section). A purchased payment facility is a facility (other than cash) where the facility is purchased and can be used to make payments up to the amount available for use under the facility and the payments are made by the provider or a person acting under an arrangement with the provider, rather than the user of the facility.
The Financial Sector Collection of Data Act 2001 (Cth) (FSCODA) is designed to assist APRA in the collection of information relevant to financial sector entities. FSCODA generally applies to any corporation engaging in the provision of finance, over certain annual thresholds, in the course of carrying on business in Australia, and requires the finance provider to regularly report relevant data to APRA including aggregated lending activity and balance sheet information.
As discussed above in the “Regulatory bodies” section, the Privacy Act regulates the handling of personal information by Federal Government agencies and some private sector organisations.
ASIC operates an enhanced regulatory sandbox regime that allows fintech businesses to operate small-scale financial service and credit offerings as pilot projects. The sandbox provides licensing relief for the projects. There are strict eligibility requirements for both the type of businesses that can enter the regulatory sandbox and the products and services that qualify for the licensing exemption.
As outlined in the “Regulatory and insurance technology section above”, regulators have also committed to helping fintech businesses more broadly by streamlining access and offering informal guidance to enhance regulatory understanding. Both ASIC and AUSTRAC have established Innovation Hubs to assist start-ups in navigating the Australian regulatory regime. AUSTRAC’s Fintel Alliance has an Innovation Hub targeted at combatting money laundering and terrorism financing and improving the fintech sector’s relationship with the Government and regulators. The Innovation Hub also assesses the impact of emerging technologies such as blockchain and cryptocurrency.
At the time of writing this chapter, there have not been any explicit prohibitions or restrictions on fintech business types. Australian regulators and policy-makers have generally sought to encourage and support fintech businesses, provided such businesses comply with applicable laws (including financial services, consumer credit and consumer laws).
As discussed above in the “Regulatory developments” section, the DDO & PIP Act introduced DDOs requiring financial product issuers to make a “target market determination” for the product, conduct distribution in accordance with the determination, notify ASIC of significant dealings inconsistent with the determination and regularly review the determination. The DDO & PIP Act also empowered ASIC to intervene using its PIP when it considers a financial product has, will, or is likely to result in significant consumer detriment.
Australian regulators and policy-makers have sought to improve their understanding of, and engagement with, fintech businesses by regularly consulting with industry on proposed regulatory changes and entering into international cooperation and information-sharing agreements. ASIC has entered into a number of cooperation agreements and information- sharing agreements with overseas regulators for the purpose of facilitating cross-border financial regulation and removing barriers to market entry. Under these arrangements, there is a sharing of information on fintech market trends, encouraging referrals of fintech companies and sharing insights from proofs of concept and innovation competitions. Through these agreements, regulators hope to further understand the approach to regulation of fintech businesses in other jurisdictions, in an attempt to better align the treatment of these businesses across jurisdictions. ASIC currently has either information-sharing or cooperation agreements with numerous jurisdictions, including the China Securities Regulatory Commission, Hong Kong’s Securities and Futures Commission, the Monetary Authority of Singapore, the Swiss Financial Market Supervisory Authority, the United States Commodity Future Trading Commission, the Capital Markets Authority of Kenya, Indonesia’s Otoritas Jasa Keuangan and Canada’s Ontario Securities Commission.
ASIC has also committed to supporting financial innovation in the interests of consumers by joining the Global Financial Innovation Network (GFIN), which was formally launched in January 2019 by a group of financial regulators from around the globe. GFIN currently has over 60 organisations dedicated to facilitating regulatory collaboration in a cross-border context and provides more efficient means for innovative businesses to interact with regulators.
Foreign financial services providers
At the time of writing this chapter, the way in which a foreign financial service provider (FFSP) is regulated in Australia is in a state of flux. The bill to implement proposed FFSP AFSL exemptions (the Treasury Laws Amendment (Streamlining and Improving Economic Outcomes for Australians) Bill 2022 (FFSP Bill)) lapsed on dissolution of Parliament, following the calling of the Federal election on 10 April 2022. The FFSP Bill set out exemptions from the requirement to hold an AFSL for (1) persons regulated by comparable overseas regulators subject to certain conditions including ASIC registration and notification obligations, and (2) persons that provide financial services from outside Australia to professional investors subject to certain conditions. The FFSP Bill also proposed an exemption from the fit and proper person assessment process for FFSPs authorised to provide financial services in a comparable regulator regime that wish to apply for a full AFSL in Australia. The Labor Government is yet to reintroduce FFSP Bill to Parliament and at the time of writing has not announced its position on the regime that should apply to FFSPs. In light of this, ASIC has extended transitional relief until 31 March 2024 under the ASIC Corporations (Amendment) Instrument 2022/623 (ASIC Instrument).
Entities currently relying on “passport” relief under the prior FFSP regime can continue to do so until 31 March 2024. Passport relief was available to certain FFSPs providing financial services to wholesale clients only, where such FFSPs are regulated by certain foreign regimes considered by ASIC to be sufficiently equivalent to the Australian regime. This extension only applies to FFSPs that were entitled to rely on passport relief as at 1 April 2020.
Limited connection relief is available until 31 March 2024 to an FFSP that undertakes very limited activities in Australia and is carrying on a business in Australia only because it is inducing, or intending to induce, wholesale clients in Australia to use its financial services that are provided from overseas.
During this transitional period, until 31 March 2024, ASIC will consider new applications for individual temporary licensing relief or new standard AFSL or Foreign AFSL applications from entities that cannot rely on the transitional relief.
Australia is a participating economy in the Asia Region Funds Passport (Passport) initiative. The Passport is a region-wide initiative to facilitate the offer of interests in certain collective investment schemes established in Passport member economies to investors in other Passport member economies, with reduced regulatory requirements. It aims to provide Australian fund managers greater access to economies in the Asia-Pacific by reducing existing regulatory hurdles. Australia, Japan, the Republic of Korea, New Zealand and Thailand are all signatories to the Passport’s Memorandum of Cooperation. Broadly, the Passport requires an eligible fund to apply to its home regulator for a passport and comply with home economy requirements in order to be registered (for Australian funds, this effectively requires registration as a managed investment scheme with ASIC). Once registered, the fund must notify the host regulator and meet host economy requirements relating to disclosure, distribution and complaints handling (for offshore funds wishing to be offered in Australia, this effectively requires compliance with the corresponding obligations for registered managed investment schemes).
In addition to the Passport, the Government passed the Corporate Collective Investment Vehicle Framework and Other Measures Act 2022 (Cth) which provides an alternative to the existing managed investment scheme regime under the Corporations Act. A Corporate Collective Investment Vehicle (CCIV) is a new type of company limited by shares and has a single corporate director. The corporate director must be a public company with an AFSL authorising it to operate the business and conduct the affairs of the CCIV. A CCIV is an umbrella vehicle that can comprise one or more sub-funds and can offer multiple products and investment strategies within the same vehicle through its sub-fund structure. The CCIV regime is intended to:
- increase the competitiveness of Australia’s managed funds industry internationally to attract offshore investment, by drawing on the features of other equivalent vehicles internationally;
- offer internationally recognisable investment products, flow-through tax treatment, commercially flexibility and strong investor protections;
- complement the Passport, which will allow Australian fund managers to pursue overseas investment opportunities through a company structure; and
- contribute to the Australian Government broader objective of global regulatory alignment.