In the past year Australia has seen significant progress in FinTech and innovation, including legislating a crowd-sourced equity funding framework for start-ups, the launch of ASIC's regulatory sandbox and introducing new tax incentives for early stage investors to boost investment in qualifying start-ups. The 2017-18 Budget builds on these developments, seeking to position Australia as a world leader in fostering innovation and FinTech.

Reduced barriers for new banks

The Government has focused on reducing the barriers currently facing new entrants to the banking sector in Australia. Alongside APRA, the Government will relax the 15% ownership cap for innovative new entrants and will lift the current prohibition on the use of the term "bank" for ADIs with less than A$ 50 million in capital.

Aimed at fostering competition, the Government will support a phased approach to licensing banks and has announced that APRA will review prudential licensing arrangements.

Double taxation of digital currency removed

Digital currencies are currently treated as intangible property for GST purposes. As a result, consumers using digital currencies pay double GST, once on purchase of the digital currency and once on use.

From 1 July 2017, digital currencies such as Bitcoin will be treated like money for GST purposes, encouraging innovative digital currency businesses to enter the Australian market.

Enhanced regulatory sandbox

The Government will introduce legislation to enhance ASIC's regulatory sandbox, extending the testing timeframe to 24 months and allowing businesses to test a broader range of financial products and credit services without a licence. These developments will mean increased competition and choice for consumers, and less regulatory burdens in developing new and innovative financial products for startups.

Businesses will continue to be subject to strict disclosure requirements and consumer protection obligations.

Extended crowd-sourced equity funding

Building on measures in the 2015-16 Budget, the Government will extend its new Crowd-Sourced Equity Funding (CSEF) framework to proprietary companies. At present, proprietary companies are not able to have more than fifty shareholders or make a public offer. This measure will allow innovative small businesses to have an unlimited number of CSEF shareholders and to access sources of capital which are crucial in the early stages of the company.

CSEF proprietary companies will be subject to specific obligations including: a minimum of two directors, financial reporting in line with accounting standards, audit requirements, limitations on related party transactions and minimum shareholder rights for participation in exit events.

Open banking regime

The Government has introduced an open banking regime and has tasked the Department of Treasury with determining the best approach for implementation, to report by the end of 2017. An open banking regime will require banks to share product and customer data with the consumer when requested.

This is a positive development for FinTech and innovation. Increased access to data will allow FinTech companies to innovate and create more tailored financial products to consumers, driving competition.

2030 Strategic Plan

The Government has commissioned Innovation and Science Australia to develop a strategic plan for the National Innovation, Science and Research System. Innovation and Science Australia will identify key priorities in order maximise Australia's capabilities and innovative potential.

If you would like further information on how your business may be affected by the 2017-18 Australian Federal Budget proposals, please contact us.