In December 2016, the Australian Securities and Investments Commission (ASIC) announced it would provide financial technology (fintech) businesses will an exemption to the requirement of having a financial services licence or credit licence. This major development reduces the red tape that may have otherwise prevented fintech companies from operating. We summarise the new regulation and what it means below.
Why Has the Fintech Licensing Exemption Been Introduced?
The purpose of the exemption is to facilitate innovation and the ‘testing’ of fintech products and services in the Australian market without the financial burdens of having to apply for Australian Financial Services Licence (AFSL) or credit licence. This will allow many businesses to determine the viability of their products and services before starting their licence application. By introducing the exemption, ASIC will have the discretion to allow businesses to operate without an AFSL, or credit licence for the fintech licensing exemption period.
What are the Main Criteria to Satisfy the Exemption?
A business will still need to satisfy certain conditions to fall under a fintech licensing exemption. Firstly, the fintech products covered are those that are involved with providing advice or dealing in or distributing products. This can apply to:
- listed or quoted Australian securities;
- simple managed investment schemes;
- deposit products;
- some general insurance products;
- payment products issued by a deposit-taking institution; and
- some credit assistance services.
ASIC provides examples of products that can be advised on or distributed, including general insurance for personal property and home contents (maximum of $50,000), consumer credit contracts, loans (between $2,001 – $25,000) and deposit products (maximum of $10,000 balance), among other things.
A business should ensure that they have met the eligibility conditions of Regulation 257 before commencing operation of a fintech business without an AFSL or credit licence.
What Does the ‘Fintech Licensing Exemption’ Allow a Business to Do?
A potential business is not required to apply for a fintech licensing exemption. However, they are must inform ASIC of their intention to operate the business. This means that if a business meets the standard eligibility requirements, they will be entitled to the exemption after informing ASIC.
However, certain conditions are attached to the activities of the business during the exemption period, including that the business must:
- have a maximum of 100 retail clients;
- not test the financial technology for 12 months or less;
- limit customer exposure to no more than $5 million;
- have arrangements in place for adequate compensation;
- have arrangements in place for dispute resolution; and
- meet the disclosure and conduct requirements.
The business will also need to comply with any applicable consumer protection and competition laws.
Once the 12-month exemption period has ended, the business will need to cease providing the fintech good or service unless they have been granted with the AFSL or credit licence during the exemption period or ASIC has approved an extension of the exemption period.
ASIC have provided further regulatory guidelines, which can be downloaded on their website.
As part of its agenda to support and foster the growth of new innovative businesses and products, ASIC has created a new regulation that exempts fintech businesses from having to obtain a financial services licence or credit licence. Eligible businesses will have greater flexibility to get their business off the ground and distribute their fintech products.
If you develop fintech products and are unsure whether or not the licencing exemption applies to your business, get in touch with our commercial lawyers on 1300 544 755.