ASIC has released a consultation paper on a proposed short-term Australian Financial Services licensing exemption to enable limited service testing for fintech startups (a regulatory sandbox licensing exemption) to facilitate innovation in financial services.
ASIC is considering a combination of the following 3 options which address regulatory barriers faced by innovative start-up businesses:
(a) Option 1—provide additional guidance about how it assesses whether a responsible manager has the appropriate knowledge and skills under Option 5 of RG 105 (including what ASIC may consider to be appropriate knowledge and skills);
(b) Option 2—modify its guidance under Option 5 of RG 105 to allow heavily automated (but small-scale) businesses to rely, in part, on sign-off from an appropriately experienced third party in order to meet their organisational competence obligation;
(c) Option 3—provide a conditional, industry-wide exemption to allow new Australian businesses to test certain financial services provided to a small number of retail clients for six months without holding an AFS licence.
Elements of this proposed licensing waiver include:
- the waiver would apply to advice and dealing services only for a period of 6 months
- the testing business must have a recognised sponsor (‘sandbox sponsor’)
- the service is limited up to 100 retail clients
- the waiver would allow up to $10,000 investment per retail client in listed securities, deposits and simple managed investment schemes
- the service may have an unlimited number of wholesale clients, subject to a total investment cap of $5 million
- the testing business must comply with a modified set of conduct and disclosure obligations
- the testing business must be a member of an external dispute resolution scheme
- the testing business must have adequate compensation arrangements
- the testing business must not be an existing licensee
ASIC expects to finalise its regulatory guidance and/or licencing exemptions in December 2016.