Australia’s banking and finance environment is one of the most tightly regulated in the world. Regulation brings protection, stability, and confidence. Most Australians are grateful for our financial stability, but it comes at a cost. Regulation creates barriers to financial innovation and disruption.
Innovative Financial Technology companies (Fintechs) have worked their way around regulatory limitations, but sometimes with overly complex and expensive solutions, or with product limitations such as, only being authorised to offer products to wholesale or commercial customers.
Other Fintechs working well in Europe or America are just not interested in pursuing the Australian market due to the risk associated with Australia’s regulatory burden. This means that Australian consumers cannot access the benefits of these offerings, such as new credit markets, or cheaper products.
The regulators are listening, but change is slow. On 28 April 2015, Greg Medcraft, Chairman of the Australian Securities and Investments Commission announced at the Australian Financial Review Banking and Wealth Summit in Sydney that ASIC is responding to the challenges created by digital disruption and financial innovation.
Mr Medcraft reiterated that ASIC is a law enforcement agency first and foremost. Trust and confidence in the financial market is critical. However, digital disruption is occurring, and ASIC intends working with industry to ‘harvest the opportunities while mitigating the risks’.
To support this commitment, ASIC has announced its innovation hub. The innovation hub involves
- industry participation,
- streamlining the process for new business models (including granting waivers from the current law if appropriate),
- improving accessibility,
- coordinating the approach to applying reforms applicable to innovative businesses, and
- establishing a Digital Finance Advisory Committee to inform ASIC.
If you’re considering a Fintech, P2P, or other innovative new e-commerce model, there has never been a better time to explore legal compliance, product design, or converting the product to the Australian market.
Despite the desire to encourage Fintechs and other innovative banking products, licensing, consumer protection, advertising, structure, financing, and legal implications always need to be considered. There are significant regulatory obligations irrespective of whether the product is designed for consumers or business.