A Guide to fintech in Australia – Lexology

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Australia has one of many quickest rising monetary know-how (fintech) sectors on the earth, constructed on Australia’s ~$10 trillion monetary providers trade. The expansion of Australia’s fintech trade has been propelled by an formidable and modern fintech neighborhood, altering client expectations, and a technologically impartial regulatory framework.
A Information to fintech in Australia
Fintech refers to using know-how to supply monetary providers. Fintech can complement, enhance, compete with or disrupt conventional monetary strategies, merchandise and supply fashions. Some examples of the affect of fintech on these strategies, merchandise and fashions embody:
Who administers fintech regulation in Australia
There are lots of regulators and businesses that administer the legal guidelines relevant fintech companies. Every maintains oversight in relation to a selected trade or authorized space.
Australian Securities and Investments Fee (ASIC)
ASIC is Australia’s company, markets, monetary providers and client credit score regulator. ASIC’s duties embody administering the Australian monetary providers, monetary markets and client credit score licensing regimes, supervising regulated entities and enforcement actions.
Within the fintech context, ASIC supervises monetary product advisers, issuers, secondary service suppliers, client credit score lenders, intermediaries and market operators.
ASIC additionally enforces client safety legal guidelines underneath the Australian Securities and Investments Fee Act 2001 (Cth) (ASIC Act) in relation to monetary services or products together with credit score actions. It has additionally been delegated powers by the Australian Competitors and Client Fee (ACCC) to take motion underneath the Australian Client Legislation in relation to cryptoassets.
Australian Prudential Regulation Authority (APRA)
APRA is an impartial statutory authority that supervises banking, insurance coverage and superannuation establishments and promotes monetary system stability in Australia. APRA is liable for administering the banking, superannuation, insurance coverage and prudential regimes together with with respect to licensing, supervision and enforcement of authorised deposit-taking establishments (together with banks, constructing societies and credit score unions) and suppliers of bought fee services, and the creation and administration of prudential requirements in relation to monetary soundness, danger administration and governance inside such establishments.
Australian Transaction Reviews and Evaluation Centre (AUSTRAC)
AUSTRAC is Australia’s monetary intelligence company, liable for stopping, detecting and responding to legal abuse of Australia’s monetary system and is liable for administering Australia’s anti-money laundering and counter-terrorism legal guidelines (the Anti-Cash Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act) and the Anti-Cash Laundering and Counter-Terrorism Financing Guidelines Instrument 2007 (No. 1) (Cth)). The AML/CTF Act regulates most monetary providers and lending companies, together with fintechADIs, lenders, saved worth suppliers, remittance suppliers, product issuers, international change sellers and digital forex exchanges.
Workplace of the Australian Info Commissioner (OAIC)
The OAIC is the impartial nationwide regulator for privateness and freedom of data. The OAIC administers the Privateness Act 1988 (Cth) which regulates the dealing with of non-public data by massive and Authorities businesses. The function of the OAIC consists of investigating complaints referring to the dealing with of non-public and delicate data, overseeing the notifiable knowledge breach scheme and, at the side of the Australian Competitors and Client Fee , overseeing the buyer knowledge proper.
Australian Competitors and Client Fee (ACCC)
The ACCC is Australia’s nationwide competitors and client legislation regulator. Fintechs that aren’t in any other case topic to the buyer safety provisions within the ASIC Act are seemingly topic to the equal provisions within the Australian Client Legislation. The buyer safety provisions embody prohibitions on deceptive and misleading conduct, false or deceptive representations, unconscionable conduct and unfair contract phrases. The ACCC has delegated its energy to ASIC to take motion underneath the Australian Client Legislation in relation to crypto-assets.
Reserve Financial institution of Australia (RBA)
The RBA is Australia’s central financial institution and supplies a variety of banking providers to the Authorities and its businesses, abroad central banks and official establishments. It’s also liable for sustaining the soundness of the monetary system by financial coverage and regulating fee methods.
Australian Monetary Complaints Authority (AFCA)
AFCA is Australia’s impartial disputes decision physique that considers client complaints about monetary services together with credit score, finance and loans, insurance coverage, deposit and funds merchandise, investments and monetary recommendation and superannuation. AFCA primarily resolves client disputes, nevertheless AFCA has discretion to listen to complaints from wholesale purchasers about AFCA member companies.
Council of Monetary Regulators (CFR)
The CFR coordinates Australia’s key monetary regulators, APRA, ASIC, the RBA and the Treasury. Whereas the CFR has no formal regulatory or coverage decision-making powers it coordinates and facilitates cooperation among the many regulators to advertise stability in Australia’s monetary system and help efficient and environment friendly regulation, together with by its consultations, coverage statements and different reviews.
The fintech Panorama in Australia 
Market lending 
Market or peer-to-peer lending connects traders (lenders) with debtors with no financial institution or conventional monetary establishment taking part as an middleman within the deal. {The marketplace} operator typically supplies extra providers corresponding to identification verification, mortgage servicing, suitability evaluation and compensation administration. Market lending fashions could fall inside the Australian monetary providers regime, client credit score regime and the AML/CTF regime. ASIC has supplied steerage in its data sheet 213 to help suppliers of market lending merchandise and others offering monetary providers in reference to these merchandise.
Purchase now, pay later
Purchase now, pay later (BNPL) has been a progress space in Australia with just a few suppliers dominating the Australian fintech panorama. At present, some BNPL suppliers function outdoors the Australian client credit score licensing regime, though they’re regulated underneath the ASIC Act, the design and distribution obligations and the AML/CTF Act. On account of mass client adoption and considerations relating to client outcomes, the Treasury has not too long ago proposed alternate options for elevated regulation of BNPL service suppliers.
Australia has an evolving insurtech market that’s pushing change in a sector that has traditionally been dominated by a small variety of suppliers. Popping out of the Royal Fee, insureds have clear expectations relating to issues corresponding to coverage options, portfolio holdings and claims dealing with. There is a chance for insurtech to make inroads on this intently held, usually sticky, sector. Nonetheless, the excessive boundaries to entry proceed to make it troublesome for fintech to meaningfully disrupt incumbents.
Australia is among the world’s main regulatory know-how hubs and the Australian regulators contemplate that regtech has the potential to assist companies to construct a tradition of compliance, establish studying alternatives, save money and time on regulatory issues and result in constructive client outcomes. Key areas of regtech embody in relation to AML/CTF and sanctions, regulatory compliance for monetary providers, governance, fraud and cyber safety. A variety of applied sciences are getting used within the regtech house together with synthetic intelligence, pure language processing, machine studying, distributed ledger and blockchain applied sciences. Regulators corresponding to ASIC and AUSTRAC are additionally exploring and utilising regtech options of their oversight of the monetary providers trade (suptech).
The Australian banking sector is very regulated with stringent licensing, conduct (together with reporting) and regulatory capital necessities which act as important hurdles for brand new companies coming into the market, following the introduction of APRA’s ‘restricted’ ADI (ie, restricted financial institution) (RADI) licensing framework in 2018, there have been quite a few new entrants within the Australian banking trade, together with digital banks (neobanks). In Australia, neobanks have been characterised by focusing on extra digitally-oriented clients with a give attention to delivering extra handy and cost-effective merchandise and plenty of at the moment are owned by incumbent monetary establishments.
Robo recommendation and wealth administration
Robo recommendation refers to platforms that make use of algorithms to supply monetary product recommendation. Australia is presently experiencing a downturn and consolidation of its recommendation trade, due largely to the elevated prices of acquiring recommendation popping out of the Royal Fee. It’s anticipated that the suggestions to be made within the High quality of Recommendation Overview on the finish of 2022 will create alternatives for a re-commencement and diversification of recommendation suppliers, together with alternatives for robo advisers to enter the market.
Fairness Crowd-sourced funding
In 2017 the fairness crowd-sourced funding (CSF) regime was launched making a licensing regime for intermediaries to supply providers to public corporations looking for to lift funds from retail traders. This regime has since been expanded and may now be utilized by proprietary corporations to lift fairness.
Whereas decreasing the regulatory boundaries to investing in small and start-up companies (together with fintechs), the framework additionally created sure licensing and disclosure obligations for CSF intermediaries / platform operators (ie, individuals itemizing CSF affords). Whereas there are a selection of reporting necessities imposed on corporations participating in crowdfunding, there are additionally quite a few concessions made with respect to restrictions that may in any other case apply to their fundraising actions. Eligible corporations can search funding from a broader vary of traders with an acceptable supply doc (with necessities much less onerous than itemizing on an change), while investor safety is maintained.
Cryptocurrencies and crypto belongings
Cryptocurrency (also referred to as digital belongings, digital belongings, crypto belongings or digital currencies) check with digital tokens created from code utilizing blockchain that don’t exist bodily within the type of notes or cash. There are lots of sorts of cryptocurrencies that could be utilised by fintech companies and initiatives. These embody stablecoins, central financial institution digital currencies (CBDCs), non-fungible tokens (NFTs), soulbound tokens (SBTs) and governance tokens. See 'A information to Web3 in Australia' for additional details about their regulation in Australia.
Blockchain or distributed ledger know-how (DLT) could also be utilized by a variety of companies together with AFSL and ACL holders and start-ups and the prevalence to which it’s getting used has been rising notably by operators of monetary market infrastructure, monetary establishments, monetary providers suppliers and different fintech companies. One instance of using blockchain know-how is asset tokenisation. See 'A information to Web3 in Australia' for additional details about the regulation of blockchain in Australia.
Decentralised finance
Defi has turn into a well-liked various to the centralised banking and monetary system. See 'A information to Web3 in Australia' for additional details about the regulation of defi in Australia.
Funds and digital wallets
Funds and digital wallets are an integral a part of Australia’s fintech panorama. See 'A Information to Funds in Australia' for additional details about their regulation in Australia.
How are Fintech companies regulated in Australia?
Relying on the services provided by a fintech enterprise, a number of of the under legal guidelines could apply.
Monetary Providers regulation
A enterprise that carries on a monetary providers enterprise in Australia should maintain an Australian monetary providers licence (AFSL) and adjust to conduct and disclosure necessities, until exemptions apply.
Monetary merchandise embody services for making a monetary funding, services of managing a monetary danger and services for making a non-cash fee. Monetary merchandise particularly embody securities, pursuits in managed funding schemes, derivatives, deposit merchandise, superannuation pursuits, life insurance coverage, basic insurance coverage, international change contracts not settled instantly, Australian carbon credit, eligible worldwide emissions items and margin lending services.
Monetary providers embody offering monetary product recommendation, dealing in monetary merchandise, making a marketplace for a monetary product, working a registered scheme, and offering a crowd-funding service.
Retail product issuers and distributors should additionally adjust to design and distribution obligations (DDO), together with the requirement to develop and adjust to acceptable goal market determinations (TMD).
Client credit score regulation
Fintechs participating in client credit score actions should adjust to credit score legal guidelines underneath the Nationwide Client Credit score Safety Act 2009 (Cth) (NCCP Act) (together with the Nationwide Credit score Code (Credit score Code)), the ASIC Act and related rules as administered by ASIC. This consists of the requirement to carry an Australian credit score licence (ACL) until an exemption applies.
The ACL requirement applies to credit score (ie, contracts for deferred debt) regulated underneath the Credit score Code, that means credit score that’s supplied:
to pure individuals or strata firms; for predominantly private, family or home functions or residential property funding; for a price or cost; and in the midst of carrying on a enterprise of offering credit score in Australia.
If the Credit score Code applies, the supplier should maintain an ACL until an exemption applies. Credit score actions embody offering credit score as a credit score supplier (issuer), offering a credit score service, offering a client lease, mortgage or assure. Credit score providers embody offering credit score help (eg, suggesting or aiding a client take a selected motion in relation to a credit score contract or client lease) and appearing as an middleman between a client and a credit score supplier or between a client and lessor. 
There are numerous ACL exemptions that apply for credit score merchandise, which generally relate to low worth and brief time period credit score preparations, sure referral preparations or in any other case being supervised by an appropriately licensed entity (being a credit score consultant).
Credit score suppliers must also concentrate on the conduct and disclosure obligations that connect to dealing in client credit score, primarily in relation to accountable lending and issuing credit score guides. Credit score issuers and distributors must also guarantee compliance with DDO, together with the requirement to develop and adjust to acceptable TMDs. Suppliers of brief time period credit score and persevering with credit score contracts should additionally adjust to product intervention orders.
Anti-Cash and Counter-Terrorism Financing Legal guidelines
Fintechs that present designated providers with a geographical hyperlink to Australia (known as reporting entities) should adjust to the Anti-Cash Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act) and Anti-Cash Laundering and Counter-Terrorism Financing Guidelines Instrument 2007 (No. 1) (Cth) (AML/CTF Guidelines). This consists of the requirement to enrol (and register, if offering remittance or digital forex change (DCE) designated providers) with AUSTRAC as a reporting entity and adjust to varied obligations corresponding to transaction monitoring and reporting. Reporting entities should have an AML/CTF Program in place that complies with the AML/CTF Guidelines, setting out how the reporting entity complies with its obligations.
A geographical hyperlink shall be established if the designated service is supplied by a everlasting institution in Australia or a everlasting institution out of the country if the supplier is a resident of Australia or a subsidiary of a resident of Australia.
Designated providers embody a broad vary of dealings in accounts with monetary establishments, loans, international change, DCE, saved worth playing cards, remittance providers, issuances of monetary merchandise, depository and custodial providers and AFSL holders arranging for purchasers to obtain different designated providers. Particularly, the remit of the AML/CTF regime is broad such that companies are sometimes captured with out in any other case being required to carry an ACL or AFSL (eg, the definitions of ‘loans’, ‘remittance service’, ‘international change’ and ‘saved worth card’ are very broad). It’s critical to know whether or not your fintech enterprise could also be offering a number of of those designated providers.
There are restricted exemptions to the necessities underneath the AML/CTF Act. Nonetheless, in some circumstances AUSTRAC could publish no motion positions or grant application-based exemptions from these necessities the place the cash laundering and terrorism financing (ML/TF) danger profile of a selected enterprise or service is low.
Australian Client Legislation
Fintech companies ought to concentrate on varied client protections. These exist within the type of prohibitions on (amongst different issues) deceptive and misleading conduct, false or deceptive representations, unconscionable conduct and unfair contract phrases as set out within the ASIC Act (administered by ASIC) and the Australian Client Legislation, as set out within the Competitors and Client Act 2010 (Cth) (administered by the ACCC).
Privateness Legal guidelines
The place a fintech enterprise is a reporting entity underneath the AML/CTF Act, a credit score reporting physique or has income of no less than $3 million, it might want to adjust to the Privateness Act 1988 (Cth) (Privateness Act). Amongst different issues, this implies it should have a privateness coverage that complies with the Australian Privateness Ideas, which impose obligations on the gathering, use, disclosure, retention and destruction of non-public data.
The Privateness Act extends to acts undertaken outdoors Australia and its exterior territories the place there’s an “Australian hyperlink” (ie, the place the organisation is an Australian citizen or organisation or carries on a enterprise in Australia and collects private data in Australia). It additionally features a framework for cross-border disclosure of non-public data.
Entities that should adjust to the Privateness Act should additionally adjust to the Notifiable Information Breaches (NDB) scheme which mandates that they’re required to inform any affected people and the OAIC within the occasion of an information breach (ie, unauthorised entry to or disclosure of data) which is more likely to lead to severe hurt to the person to whom the knowledge relates. 
Client knowledge proper / open banking
The buyer knowledge proper (CDR) permits shoppers to train larger entry and management over their knowledge and provides clients a proper to require knowledge holders to share their knowledge with accredited knowledge recipients (together with banks, comparability providers, fintechs or third events). The CDR initially was applied within the banking sector underneath the ‘Open Banking’ regime and has since been prolonged to different sectors. Below Open Banking, the CDR supplies a safe and trusted methodology for ‘accredited knowledge recipients’ to entry shoppers’ (each particular person and enterprise shoppers) banking knowledge. Accessing banking knowledge can present larger insights right into a buyer’s monetary scenario and permit monetary service suppliers to supply their providers extra effectively. The CDR’s affect on monetary service suppliers is more likely to improve over time with the roll out of the CDR financial system vast. Particularly, the Federal Authorities has introduced that the CDR regime shall be prolonged to “Open Finance” (that’s, non-bank lending, insurance coverage, superannuation and funds knowledge). This may imply clients can train larger entry and management over their knowledge and extra fintechs will be capable of present providers the place clients can extra simply swap service suppliers, which improve buyer expertise and supply extra personalised choices.
Monetary sector assortment of information
ADIs and non-bank lenders which might be firms participating within the provision of finance in the midst of carrying on enterprise in Australia have basic monetary reporting obligations underneath the Monetary Sector (Assortment of Information) Act 2001 (Cth) (FSCODA). FSCODA operates to facilitate the gathering of statistical knowledge on monetary sector entities to help APRA with performing its supervisory features and for statistical functions. There are exceptions from the definition of registrable company, together with entities for which the sum of the values of the company’s belongings in Australia that include money owed as a result of company ensuing from transactions entered into in the midst of the supply of finance by the company and the sum of the values of the principal quantities excellent on loans or different financing doesn’t exceed $50 million.
Overseas fintechs
The regulation of international monetary service suppliers (FFSPs) is in a state of flux. At present FFSPs carrying on a monetary providers enterprise in Australia require an AFSL or should depend on an exemption (corresponding to being appointed an authorised consultant of an AFSL holder or counting on restricted connection reduction), until reduction is granted.
Traditionally, FFSPs regulated in comparable jurisdictions had the advantage of restricted licensing reduction for monetary providers supplied to wholesale purchasers.  In 2020, this was repealed and changed with a international AFSL regime. In 2021, the Authorities proposed reverting again to the comparable jurisdiction regime (with some amendments).  Laws to this impact was put to the Australian parliament in early 2022 however lapsed with the change of Authorities. At present no intention has been introduced relating to the way forward for FFSP regulation in Australia. 
Overseas fintechs offering client credit score should maintain an ACL until an exemption applies.
Overseas corporations carrying on a enterprise in Australia could also be required to determine a neighborhood presence (ie, register with ASIC and create a department) or incorporate a subsidiary. The larger the extent of system, repetition or continuity related to enterprise actions in Australia, the larger the probability that registration shall be required.
Typically, a service supplier from outdoors Australia could reply to requests for data and problem merchandise to an Australian resident if the resident makes an unsolicited strategy and there was no conduct on the a part of the issuer designed to induce the investor to make contact, or actions that may very well be misconstrued because the supplier inducing the contact.
Way forward for fintech regulation in Australia
Royal Fee 
Australia’s monetary providers coverage and regulatory context is basically knowledgeable by the findings of the 2017–2019 Royal Fee into Misconduct within the Banking, Superannuation and Monetary Providers Trade (Royal Fee). The Royal Fee made a sequence of suggestions for regulatory reform, specializing in issues corresponding to prioritising the pursuits of shoppers, overhauling conflicted remuneration constructions and altering the best way add-on merchandise are distributed. A raft of legislative adjustments adopted to implement these suggestions. fintechs – notably these which might be motivated to supply monetary providers in a method that’s extra handy, personalised and simplified for shoppers – shall be nicely positioned to adapt to those adjustments, and seize the chance introduced by the present public sentiment of dissatisfaction with conventional suppliers.
Simplification of the monetary providers legal guidelines
As a part of the Authorities’s response to the Royal Fee, the Australian Legislation Reform Fee (ALRC) carried out an inquiry into simplifying Australia’s monetary providers regulatory framework to make it “extra adaptive, environment friendly and navigable for shoppers and controlled entities”. The ALRC has supplied interim reviews in two areas, being the design and use of definitions in firms and monetary providers laws, and the regulatory design and hierarchy of legal guidelines. The ALRC is predicted to launch a 3rd interim report on the potential to reframe or restructure ie,Australia’s monetary providers legal guidelines by the tip of August 2023.
Funds system regulation
The Australian Authorities has been enterprise varied opinions into points of fee methods regulation, together with:
Crypto belongings
A number of consultations have not too long ago concluded on proposed regulation regarding the remedy of crypto belongings and their associated providers. See 'A Information to Web3 in Australia' for additional data
Purchase now pay later
On 21 November 2022 Treasury launched a session paper on a proposed regulatory framework for BNPL suppliers in Australia (see right here: Treasury consults on choices to manage Purchase Now, Pay Later in Australia). Three choices, leveraging the prevailing regulatory framework are proposed. Both:
Regulatory help
Australian regulators are dedicated to assist fintech companies with steerage to boost regulatory understanding and packages to help in providing services to Australian shoppers.
Fintech Sandbox
ASIC operates a regulatory sandbox which permits fintechs to function small scale monetary providers or credit score actions as pilot initiatives with out an AFSL or ACL. There are strict eligibility standards for the kind of companies that may take part and the services that qualify, together with that there should be a web profit to the general public and the services or products should be new and modern.
ASIC innovation hub
ASIC has established an innovation hub to help startups and fintechs which:
Regulator engagement
Each ASIC and AUSTRAC have printed steerage to boost regulatory understanding.
ASIC and AUSTRAC host meetups with trade and advisers to debate the newest initiatives and information with monetary innovation and know-how.
AUSTRAC recognises that regtech performs an necessary function in aiding reporting entities to satisfy their AML/CTF obligations and supplies basic steerage about AML/CTF regulation by its AUSTRAC RegTech Engagement program.
AUSTRAC Innovation hub
AUSTRAC’s Fintel Alliance has an Innovation Hub focused at combatting ML/TF and bettering the fintech sector’s relationship with Authorities and regulators. It additionally assesses the affect of rising applied sciences corresponding to blockchain and cryptocurrency.
AUSTRADE assists fintechs in exporting their providers abroad.
Worldwide help
Australia has memorandums of understanding (MOUs) with regulators all over the world to help fintechs in cross-border enlargement together with with Canada, Kenya, Singapore, the UK and United States.
The function of our advisors and the way we might help together with your fintech inquiries
The applying of regulation to fintech companies is usually a advanced panorama to navigate.It’s critical your corporation has authorized advisers that perceive these regimes. Gilbert + Tobin’s Fintech + Web3 crew has a powerful observe file and breadth of experience within the trade, advising all sorts of fintech companies (eg, lenders, BNPL suppliers, banks, monetary establishments, robo advisers, wealth administration platforms, acquirers, digital marketplaces, digital forex suppliers, digital pockets operators, fairness crowd-sourced funding platforms and firms looking for funding and extra). Our providers embody regulatory recommendation, product ideation and institution, licensing, disclosure, conduct evaluate, regulator engagement and extra.
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