A RegTech business provides technologically-advanced solutions for compliance requirements, such as:

  • regulatory reporting;
  • risk management; and
  • transaction monitoring.

If you intend to start your own RegTech business, you should be aware of the legal issues and requirements at each stage of growth. This article provides guidance on the four key stages of your startup.

1. Research and Development

Completing market research is important for the success of your product and underlying technology. It will help you identify your target market and, consequently, build your growth strategy.

For example, research conducted by Dynamic-GRC about governance and compliance software solutions found that these solutions were often expensive and tailored to larger organisations. As a result, they created a software solution targeted to small and medium-sized clients, designed for cost efficiency.

As a RegTech business, you may also have access to ASIC’s Innovation Hub for further research or guidance. To receive assistance, you must be an “eligible business”. This depends on various factors, including:

  • the type of RegTech product you have developed;
  • whether your innovation promotes a better outcome for investors and consumers; and
  • whether your innovation can improve risk management or compliance standards.

Legal Needs

You will have to address different legal requirements or issues at each stage of your business’ life cycle. The table below identifies key legal requirements at the Research and Development (R&D) stage.

 

Legal Need Purpose
Business Structuring Setting up your business structure correctly can help your company grow quickly. A good business structure can also can help:

  • protect your company’s assets;
  • limit your personal liability; and
  • benefit you from a tax perspective.
Australian Financial Services Licence
(AFSL)
You may be required to obtain an AFSL if you are:

  • providing financial services; or
  • offering services to AFSL providers.
Confidentiality Agreement In your R&D stage, you will probably talk with developers, potential investors, and other key personnel about your business. Signing a confidentiality agreement with these parties can help protect your innovative ideas in these initial conversations.

 

2. Pre-Minimum Viable Product (Pre-MVP)

At this stage, engage developers to develop your technology and the interface that businesses will use. Additionally, finalise your branding and set up mechanisms to protect your intellectual property (IP) (such as your business logo) as best you can. It is also a good time to conduct marketing campaigns before the official launch, to generate interest in your product.

Consider holding a soft launch with early adopters to test the compliance mechanisms and technology you use. This will help you identify flaws in your operations before your full-scale launch.

Legal Needs

The table below identifies key legal requirements of the pre-MVP stage.

Legal Need Purpose
Trade Marks A trade mark lets you build brand identity and loyalty through the exclusive right to use the mark for a renewable period of time. Having registered rights means you can take action if your competitors use the same, or a similar, mark.
Development Agreement If you are engaging an external developer for your website and software, you should have a development agreement which details:

  • the scope of work;
  • the assignment of the IP to you on completion (otherwise the developer may own the IP); and
  • cancellation rights.
Employment Agreement

Use formal employment agreements when hiring staff. As an employer, you will also need to comply with the National Employment Standards and any relevant awards.

You may also want to consider whether to put an employee share scheme in place to incentivise employees.

Patents

A patent is the exclusive right to monetise an invention for up to 20 years.

If your platform is a novel form of software or technology, you may be successful for patent protection.

 

3. Launch

At this stage, your products are ready to be launched. If you are engaging enterprise customers, ensure that your software licence covers enterprise use and not just consumer use.

Legal Needs

The table below identifies key legal requirements of the launch stage.

 

Legal Need Purpose
Website Terms of Use This document protects the IP on your website. It also limits your liability in regards to the content on your website.
Website Privacy Policy

This document ensures that your business complies with the Privacy Act. You should have a privacy policy on your website if you are solely operating online.

It is particularly important for RegTechs, as you will be storing large amounts of data with personal information.

Software as a Service (SaaS) Agreement SaaS agreement is the contract between you and your clients. You will need this agreement if you are providing services through an online platform.
End User Licence Agreement (EULA) A EULA is a contract between a software developer and the end user. When you have an enterprise SaaS agreement with a large business, you will also need a EULA. The business’ employees or customers (the end users) will need to sign up to the EULA.

 

4. Growth Stage

Once your business is in the growth stage, you may be considering raising capital. High-growth startups usually do this by seeking equity investment from venture capital funds and other professional investors. Investment helps you inject capital in the business, resulting in quicker expansion compared to organic growth.

For example, Moneycatcha is a RegTech business solution designed to create a more efficient home loan process. It has had two successful rounds of capital-raising which has allowed it to expand by:

  • partnering with other Australian financial institutions, including KPMG and Landgate; and
  • growing to the international market.

Legal Needs

The table below identifies the key legal issues of the growth stage.

 

Legal Need Purpose
Capital Raising When seeking investment to raise capital, you may need to:

  • finalise a pitch deck or information memorandum;
  • negotiate a shareholders agreement; or
  • draft or finalise a share subscription agreement, SAFE note or convertible note.

Key Takeaways

There are legal steps and documents required at each stage of growing your RegTech business. Being aware of what you need to do, and when, can help smooth the administrative path as your startup expands.

For further advice on how to start your RegTech business, contact LegalVision’s startup lawyers on 1300 544 755 or fill out the form on this page.

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.
Sam Auty

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