The Australian Securities and Investments Commission (ASIC) has published guidance and other material in relation to the enhanced regulatory sandbox (ERS) for innovative financial services businesses. The guidance was released on 25 August 2020.
The ERS is implemented under the Corporations (FinTech Sandbox Australian Financial Services Licence Exemption) Regulations 2020 and the National Consumer Credit Protection (FinTech Sandbox Australian Credit Licence Exemption) Regulations 2020.
The ERS commenced on 1 September 2020 and supersedes the ASIC Fintech Sandbox (Sandbox) which we discussed in our previous article here.
The ERS expands on the Sandbox and allows for a longer testing period of up to 24 months for a broader range of financial services and credit activities and for a wider range of businesses, including existing licensees.
In summary, the key changes to the Sandbox include the following:
- Eligibility criteria: Applicants will need to satisfy two new tests – the net public benefit test and the innovation test, summarised below:
- Net public benefit test: An applicant must adequately explain why exempting each eligible financial service, financial product or credit activity will result, or be likely to result, in a benefit to the public. The benefit must outweigh any detriment to the public that will result, or be likely to result, from exempting that service.
- Innovation test: An applicant must adequately explain why each eligible financial service, financial product or credit activity is considered either new or a new adaptation or improvement of another service.
- Timeframe: An increase in the timeframe for testing from 12 months to 24 months. If an applicant is able to rely on the ERS exemption, the exemption period commences on the 31st day after the applicant lodges the notification with ASIC (if ASIC has not corresponded with you in the 30 day period form lodgement). The exemption period cannot be extended, paused or reset.
- Number of clients: The maximum number of wholesale clients that the financial services can be provided to remains unlimited. The maximum number of retail clients that the financial services can be provided to increases from 100 clients to an unlimited number of clients.
- Use of sandbox: Under the superseded Sandbox, a business could only use a regulatory sandbox once. Following the changes, a business can use the ERS to test a particular financial service or credit activity only once, however, the business can use the sandbox multiple times to test different services and activities for which they have not already tested.
- Financial services: The ERS broadens the range of financial services for market testing for both wholesale and retail clients (detailed in the table below).
ASIC Information Sheet 248 Enhanced regulatory sandbox
As part of the changes to the regulatory sandbox, ASIC has published guidance in relation to the ERS, which is contained in ASIC Information Sheet 248 Enhanced regulatory sandbox (INFO 248).
Our summary of INFO 248 is set out in the table below.
|Entry requirements||To be eligible, you must: • not currently be authorised by an AFSL or credit licence to provide the same financial services or products, or engage in the same credit activities, that you are proposing to test; and • satisfy two new tests, being the: - net public benefit test; and the net public benefit test; and the - innovation test; • plan to test for no more than 24 months; and • notify ASIC in the prescribed notification form.|
|Ongoing conditions||If you are relying on the ERS exemption, you must: • only provide eligible financial services and products or only engage in eligible credit activities; • limit individual retail client exposures to $10,000 for certain products; • have total customer exposure of no more than $5 million; • have adequate compensation arrangements (such as professional indemnity insurance); • be a member of the Australian Financial Complaints Authority; and • meet disclosure and conduct requirements.|
|Eligible financial services and credit activities||The following activities are eligible: • providing personal or general advice; • dealing (excluding issuing) in or distributing eligible financial products; • issuing non-cash payment facilities; • issuing insurance (including as an agent); • providing a crowd-funding service; or • lending money to consumers. The following activities are not eligible: • issuing other financial products; or • operating your own managed investment scheme.|
|Type of client||The type of client (ie wholesale or retail) will determine the types of financial product for which you can provide financial services. Wholesale clients • You can provide eligible financial services in relation to all financial products, except for derivatives and margin lending facilities. Retail clients and credit consumers • You can provide eligible financial services in relation to the following financial products: - deposit products (ADI issued); - non-cash payment products (ADI issued); - general insurance products (excluding consumer credit insurance); - life insurance superannuation products; - interests in simple managed investment schemes; - Commonwealth debentures, stocks and bonds; - securities (shares and bonds) listed on the official list of a prescribed financial market or an approved foreign market; - crowd-sourced equity securities; or - consumer credit contracts which have certain features including a term of no more than 4 years, and a credit limit of between $2001 and $25,000.|