How Your Fintech Business Can Take Advantage of the Government’s Regulatory Sandbox Program

Summarise with: ChatGPT Perplexity Microsoft Copilot

---

Table of Contents

• The Licences 
• Why Take Advantage of Enhanced Regulatory Sandbox?
• Eligibility Criteria 
• The Application Process
• Conditions Under the Enhanced Regulatory Sandbox
• Key Takeaways
• Frequently Asked Questions

Australian regulators can permit fintech businesses to provide financial or credit services without needing the requisite licences under a regulatory exemption program. This regulatory exemption program is the Enhance Regulatory Sandbox. The program allows businesses to avoid regulatory compliance requirements while they test innovative financial and credit services or products. This article explains how your fintech business can take advantage of the Enhanced Regulatory Sandbox. 

The Licences 

A fintech business can obtain exemptions from needing two types of licences under the Enhanced Regulatory Sandbox:

• Australian credit licence (ACL): Any person who provides credit services to consumers needs an ACL if those credit activities are covered by the National Credit Code (NCC). The NCC applies to credit services where those services are procured for non-commercial use. Therefore, business loans are not covered by the NCC and do not fall within the ACL regime. 
• Australian financial services licence (AFSL): Any person engaging in the business of providing financial services or otherwise dealing with financial products needs an AFSL.

Why Take Advantage of Enhanced Regulatory Sandbox?

Your fintech business should take advantage of the Enhanced Regulatory Sandbox if your business is at the start of your operation and is likely to engage in either financial or credit services, which will likely trigger the need for an AFSL or ACL. The program allows you to test your innovative services or products in the Australian market for up to two years before obtaining an AFSL or ACL. This can save you time, money and resources that you would otherwise spend on the licence application process and ongoing compliance. 

Eligibility Criteria 

To be accepted into the Enhanced Regulatory Sandbox, you must be an eligible person and must satisfy ASIC that you:

• are fit and have requisite probity and propriety to provide their services or products; 
• pass the net public benefit test – you must show how exempting the service or product from the licencing regime benefits the public and how those benefits outweigh any detriment that might arise from exempting the service or product; and 
• pass the innovation test – you must show that the service or product is new in the market, an improvement or a better adaptation of another service currently operating in the market.

ASIC has clear guidelines on when an individual or a company is an eligible person. A company is an eligible person if it has not, in the past, provided the relevant financial or credit services:

• under its own licence;
• as a representative of a licensee; or 
• as a related entity of another entity that has done the same. 

The company must also not be a foreign company or an operator of a financial market or clearing and settlement facility. 

The Application Process

To apply for the Enhanced Regulatory Sandbox, you must complete and lodge a prescribed form with ASIC. There are separate forms for ACL or AFSL exemption. ASIC will then assess the application and communicate with you if you satisfy the minimum requirements. If your application is successful, you can test your products or services under the Enhanced Regulatory Sandbox. 

Participants who are in the Sandbox must comply with ongoing obligations, including: 

• complying with ongoing disclosures and other requirements; 
• becoming a member of the Australian Financial Complaints Authority; and
• holding professional indemnity insurance if the service or product targets retail clients.

Conditions Under the Enhanced Regulatory Sandbox

ASIC places certain restrictions and conditions on any business accepted into the Enhanced Regulatory Sandbox. These businesses cannot do all actions that a person with an ACL or an AFSL can do. Likewise, they must adhere to the several conditions that ASIC imposes on them, namely the business:

• can only provide certain types of financial and credit services (which are outlined in ASIC’s guidelines available online);
• must not exceed the applicable exposure limits for clients:
  • a business in the Enhanced Regulatory Sandbox can only provide certain financial services to retail clients up to an individual value of $10,000; and
  • the aggregate value of all financial and credit services provided by the business cannot be more than $5 million; 
• may only test the product for up to two years. A business cannot reapply to join the Enhanced Regulatory Sandbox after the lapse of the two years; 
• must comply with any ongoing orders from ASIC; and
• must follow all other laws and regulations in Australia, like the design and distribution obligations, the anti-money laundering and counter-terrorism law and the privacy law. 

Complete Guide to Expanding Your Startup to Australia

After proving your startup’s success in your home country, you may be thinking about the next step for growth — expanding overseas.

This free guide aims to introduce startup founders to the Australian startup market.

Download Now

Key Takeaways

The Enhanced Regulatory Sandbox allows fintech businesses to test innovative financial and credit services and products without first obtaining an Australian financial services licence and an Australian credit licence. You would otherwise need these licences to provide those services or products. ASIC only permits eligible businesses that meet its criteria to join Enhanced Regulatory Sandbox. Fintech businesses that are successful in their application must meet certain ongoing obligations to continue testing their products and services as part of the program.

Frequently Asked Questions