Senate debates

Thursday, 6 February 2020


Treasury Laws Amendment (2018 Measures No. 2) Bill 2019; Second Reading

1:03 pm

Photo of Peter Whish-WilsonPeter Whish-Wilson (Tasmania, Australian Greens) Share this | | Hansard source

I was just making the point that the Treasury Laws Amendment (2018 Measures No. 2) Bill 2019, the bill for a sandbox for fintech, may well become kitty litter for spivs if we don't have the right controls in place, if I could use that analogy. Those parliamentarians who are perhaps caught in the thrall of fintech need to consider this very seriously.

Let me remind senators of the drastic consequences that financial innovation can have. I want to give you a couple of examples that relate directly to consumers as well as investors. On the consumer side, this bill opens the door for new forms of payday lending to operate without a licence. Can anyone seriously say that what we need right now is faster and looser controls around consumer credit and more ways for loan sharks to ply their trade?

It's worth looking at what happened recently in the UK in this respect. Fintech payday lender Wonga was basically an app that allowed people to get quick loans online. Wonga was charging effective interest rates of up to 1,500 per cent to their customers. In their drive to get big and go public, they got loose with lending standards, and it all went belly-up—a story I think we're all very familiar with—leaving about 400 million pounds in outstanding loans. Yet, through this bill, the government is paving the way for fintech payday lenders—loan sharks—to get in the sandbox here in Australia.

Let's be totally frank about this: we are making it easier for these start-ups, if that's what you want to call them, or these fledgling fintech companies to raise more money, to go to investors. Why are we doing that? Because, obviously, this industry has lobbied for this because they're finding it difficult to access capital. They're finding it difficult to access capital because this is a very complex and high-risk area, and they're asking for a lowering of regulations and standards to get them up and running. I don't have a problem, as I said earlier, with professional investors investing in these kinds of businesses, because they know what they're doing and they're usually very well diversified. I do have problems with mums and dads who are at a barbecue, who hear about the next best thing since sliced bread, who jump on board without adequate disclosure of risks and who end up getting burnt. It doesn't matter whether it's $1,000, $10,000 or $20,000—that's a lot of money to many small investors.

For investors, this bill is likely to pose even more risk. In the brief time that fintech start-ups have been selling their products, we've already had some pretty good examples of what can go wrong right here in Australia. There's Bux Global, who developed another app—there's always an app—that would allow customers to transfer money internationally. The now Chair of AMP, David Murray, was an adviser to this company, but even David Murray, with all his experience, couldn't foresee that the company was going to go bust and leave investors short-changed to the tune of $100 million. How about Sargon, who were going to provide electronic superannuation infrastructure services? I'm not quite sure exactly what that is; however, former senator Stephen Conroy—I used to enjoy his contributions in this chamber—was on the board, and they were also shaping to go public. That also collapsed late last year and is now under administration.

The conclusion, to put it simply, is the parallels between the frenzy around fintech and things like the millennium dotcom boom are remarkable. I didn't participate in the inquiry that went around looking at and hearing evidence on the companies, and I respectfully also highlight what I highlighted at the beginning of my contribution, which is that I understand that these kinds of businesses can be important for the economy in terms of increasing competition and breaking down concentration of power, particularly in credit markets, but we've got to get there the right way—the right way that protects investors and consumers.

I remember One.Tel from 20 years ago, and I'm very concerned that we're going to repeat a similar kind of investment catastrophe, such as we've seen with Bux Capital and Sargon, if we loosen standards and we don't have the right regulations in place. I wish these companies well. I certainly hope they turn out to be successes, both for the people who run these companies and their investors, but 'buyer beware' doesn't cut it. We know that even in the best examples where financial advisers, even with licences, provide information to consumers, often those consumers aren't financially literate. They don't fully understand the risks, and that is no longer, after the Hayne royal commission, an excuse under law, and nor should it be in this instance.

I want to finish by saying that one thing we've learnt from the royal commission is that, if we're to protect consumers and protect investors, we need a better regulated financial industry. We don't need more loopholes that allow disreputable operators to operate in this kind of high-tech, highly complex environment.

1:09 pm

Photo of Gerard RennickGerard Rennick (Queensland, Liberal Party) Share this | | Hansard source

I rise to contribute to the debate on the Treasury Laws Amendment (2018 Measures No. 2) Bill 2019. This bill is another key step in the government's billion dollar National Innovation and Science Agenda, a strategy to promote a culture of innovation, entrepreneurship and risk-taking to expand, develop and strengthen the Australian economy. This bill allows for very specific targeted amendments to Australia's tax and regulatory architecture. Once applied, these changes will better support Australia's developing financial technology sector to more effectively market test new products and services.

The bill also seeks to clarify tax provisions to deliver greater certainty for early stage venture capital investment in Australian small-cap businesses, including crowdsource funding for start-ups. These reforms will help establish Australia as a leading fintech hub by driving competition that will help deliver better outcomes for consumers, including cheaper financial products.

The bill comprises two schedules, which will have different purposes. Schedule 1 amends the Corporations Act 2001 and the National Consumer Credit Protection Act 2009 to allow conditions to be imposed on providers of financial and credit products who utilise the Australian Securities and Investments Commission's existing regulatory sandbox arrangements to test new, innovative fintech products in the Australian market. Schedule 2 makes minor amendments to the Income Tax Assessment Act 1997 and the Income Tax Assessment Act 1936 to ensure that the venture capital and early stage concessions in either of the acts operate as intended. The coalition government is committed to supporting the Australian innovation ecosystem by providing a tax and regulatory environment that will help innovation in Australian businesses and help them to raise capital, grow and succeed, and get more Australians into more and better paying jobs.

What is fintech? Financial technology refers to the use of innovative technology in providing financial products and services to consumers. Fintech has applications across lending, financial advice, investment management and payment services. What is the regulatory sandbox? In order to facilitate the development of new fintech products, ASIC's regulatory sandbox allows new products to be tested in the Australian market for 12 months without requiring financial advisers or dealers of the product to first obtain an Australian financial services licence or an Australian credit licence.

The licensing exemption is limited to those providing financial advice on relevant products or those dealing in the products. This exemption is not available to issuers of the product. The purpose of providing an exemption is to reduce the barriers to new product development by reducing the time and the costs associated with bringing new financial products to the market and allowing for the viability of a new product to be tested in the market. It may also assist advisers and dealers to satisfy the conditions for obtaining an AFSL or ACL following the 12-month testing period.

To balance the testing regime with the need to protect consumers, strict conditions apply to licensing exemptions provided under the sandbox arrangements. The exemption is limited to certain financial products and credit contracts. They include listed or quoted Australian securities, securities issued by the Australian government, simple managed investment schemes, deposit products, some general and life insurance products, payment products, and some credit contracts. Consumers must be informed that the product sold to them is being tested in the regulatory sandbox, that the provider of the product is not licensed and that some of the normal protections associated with receiving services from a licensed provider will not apply.

The services and products that can be issued under a licence exemption are subject to limits in order to minimise the risk of losses to consumers. These include that businesses relying on an exemption can only provide services up to 100 retail clients; the maximum exposure to a financial product for each retail client is $10,000; the maximum credit contract that can be provided is $25,000; the amount insured under a general insurance contract is limited to $50,000; and there are no individual exposure limits for wholesale or sophisticated clients, but the total exposure of all clients must be limited to $5 million.

The government's enhanced sandbox is about helping fintech businesses overcome the initial regulatory burden and costs of licensing that may otherwise hinder some of their innovative offerings. Schedule 1 to this bill extends the regulation-making powers in the Corporations Act, establishing the foundation for the government's enhanced regulatory sandbox. Regulations will outline the detail of eligibility criteria, the types of products and services that can be tested, and the conditions which apply during testing.

A regulatory sandbox allows entrepreneurs to test new products without the inhibitive need to have a financial services or credit licence from the Australian Securities and Investments Commission. It will allow trial and errors in a safe environment, helping firms to work out if their products and services are robust and will be valuable to consumers. The government's enhanced legislative sandbox builds on ASIC's existing licence exemption. The enhancements will broaden the scope, expanding who can use it, what can be tested and how long businesses can test. The enhancements enable firms to test specified financial services, including financial advice, the issuing of consumer credit contracts and facilitating crowdsourced funding. The first iteration of the sandbox was a good start, with seven companies entering the sandbox since 2016. However, over the same period, the FCA sandbox in the UK has had 89 companies make use of its sandbox. It's clear that changes must be made. The enhanced fintech sandbox is similar to the UK's sandbox and hopes to replicate its success.

The government has been methodically progressing policies that will ensure Australia is a leading destination for fintech talent and investment. This is a competitive sector, with comparable countries like the UK and Singapore keenly looking to attract Australian firms. The regulatory sandbox is expected to lead to greater competition and increased pressure on financial providers—traditional and emerging—to be more responsive to consumers' needs and to deliver better outcomes for Australians. This is one more step in the government's systematic approach to ensuring the policy settings are right to support Australian fintech businesses to succeed.

The parliament retains its sovereignty: all regulations relating to the bill are disallowable, and there are no provisions for ministerial discretion. Schedule 2 to this bill makes a number of minor technical amendments to the early stage venture capital limited partnership and tax incentives for early-stage investor regimes, which have been developed through ongoing engagement with stakeholders and the ATO. The amendments, despite being minor and technical in nature, will ensure these programs operate in accordance with their policy intent, providing certainty to stakeholders and helping to ensure that innovative Australian businesses can grow and flourish.

An active fintech sector is a critical driver of more competition in financial services. We want to see competition, because it will increase the pressure on financial providers—both traditional and emerging—to be more responsive to consumers' needs and deliver better outcomes for Australians. The enhanced regulatory sandbox will allow firms to test new products and services without needing to obtain a financial services licence or a credit licence from ASIC first. It will therefore allow for trial and error in a controlled environment, giving firms a chance to confirm their concept through initial testing with their clients.

We have worked hard to develop a legislative regulatory sandbox which builds on ASIC's existing licence exemption. But we have also been mindful of ensuring the firms in the regulatory sandbox maintain protections for retail consumers. The amendments being made by this bill will ensure that investors in innovative Australian businesses continue to benefit from effective, generous government support and have certainty as to how these programs are intended to operate.    This policy was inspired by the financial hubs of London and Singapore. It is these leaders of finance and trade—fellow members of the Commonwealth—who we have to stay with and surpass to remain competitive.

This side of the chamber has a plan for an even stronger economy—an economy driven by world-class innovation, entrepreneurship and investment pathways.    It is about building resilience, rewarding aspiration and improving the consumer environment. The Morrison government is reducing the costs of doing business, by lowering taxes, prioritising abundant and affordable energy and driving deregulation. We will continue to play to our economic strengths and remain on track to realise our opportunities as a nation. I commend this bill to the Senate.

1:19 pm

Photo of Deborah O'NeillDeborah O'Neill (NSW, Australian Labor Party) Share this | | Hansard source

Before I make my contribution to the debate on the Treasury Laws Amendment (2018 Measures No. 2) Bill 2019, I have to remark on hearing the close of Senator Rennick's speech and the speeches of so many of those on the other side. They get to the end and they give you this little three-line patter about how they are doing this and they're doing that—and the great PR machine of the government rolls on!

At the end of every speech you get a little signal of it. The problem is that the gap between the rhetoric and the reality is growing by the day.

Sadly, as much as they talk about innovation, as much as they talk as though they're able to support businesses, this is a government that have been in for three terms, and this bill's coming to us because they haven't been able to get the job done right. They have not been able to create the context in which innovation booms in the way that they've proclaimed it would, just by them showing up and becoming the government.

I take great interest in this bill, the Treasury Laws Amendment (2018 Measures No. 2) Bill, particularly given my former role as shadow assistant minister for innovation. I think we would all agree that we should and indeed must do everything we can to support Australians nascent start-up industry. This bill creates a regulatory sandbox that would allow—at least in principle—fintech companies to develop new financial products without traditional regulatory constraints and makes minor changes to the venture capital and angel investor tax arrangements.

Schedule 1 of the bill has been described by some of my colleagues, and I concur that it changes regulations which will allow ASIC to grant conditional exemptions to the Australian financial services licence or an Australian credit licence requirement for the purpose of testing financial and credit service products. Schedule 1 also empowers ASIC to decide when the exemption starts and ceases to apply, as well as the discretion to enforce specific conditions to the exemption. Schedule 2 of the bill amends the Income Tax Assessment Act 1997 to change tax concession provisions regarding venture and early-stage investor capital. This measure is one that Labor supports as it addresses gaping holes previously left in the government's Tax Laws Amendment (Tax Incentives for Innovation) Act 2016. I think that proves my opening remarks: this government has got it wrong on so many occasions across the three terms that it has been elected to serve this nation.

The bill under discussion at this point of time here in the Senate broadly attempts to allow the Australian fintech industry greater freedom from the current regulatory regime at the very beginning of a product's conception. I accept and we understand that this is a development stage element that's crucial in the eventual development of technology and it's important to allow innovation in areas that would not traditionally be possible. Fintech is a growing and important industry, with almost 58 per cent of Australians who are digitally active using some form of technology that automates some aspect of financial services. As more and more of our society and industry becomes digitised, the provision of financial services through technology will become even more crucial in our everyday lives.

The financial services industry in Australia is a huge export industry worth almost $4.6 billion. We are a global leader in the industry. To remain on top, we must also be on top of new and emerging technologies. Fintech—already worth around $1 billion despite the inefficient regulatory regime that has lagged far behind the market's development, needs better care. The introduction of a regulatory sandbox—the idea of a temporary exemption from certain regulations to stimulate innovation in a risk-free environment—is one that should be carefully considered given the current regulations are designed to protect consumers from predatory financial institutions. I need to remind no member of this chamber or anyone who might be here visiting parliament today or, indeed, those who might be listening to the broadcast, of the pernicious dangers of financial institutions, which were all too clearly revealed to a horrified public through the course of the banking royal commission. We must always remember that regulations exist for a reason and we should only alter them under the most careful of circumstances. Labor is a great supporter of innovation. We are also energetic supporters of the fintech industry. Labor backs entrepreneurs who create with their minds as much as we want to support tradesmen who create with their hands. That's why Labor will be supporting this bill but with certain amendments. To ensure that safety of consumers is embedded in this legislation, our efforts will be to try and correct what we think is bad about this legislation, to better give it viability.

New fintech services allow small and medium businesses access to financial services and to circumvent the monopolies that some of the larger businesses in the financial and insurance industries have on particular products that we all might want as consumers. We absolutely support greater competition in the industry through interesting and affordable technologies, but we must also make sure that our regulatory regime keeps up and is not lapped by sneaky and malicious actors. I've been very vocal in this house, and only last year I spoke about the need to cut down on the capacity that there seems to be for scammers to exploit our citizenry, particularly by using schemes that reach into our pockets and into our lives through our phones. This bill should not be a green light for wannabe con artists who want to get their hands on Australian people's money through technology that is not properly contained and regulated to a degree that gives people safety and certainty in their interaction with it. There should be the relevant protections. There's a public interest, and the exemption that the bill will provide for should be able to be used only by those whose motives and methods seek to advance the common good.

We've often heard from those opposite about the need for innovation. Was it not erstwhile Prime Minister Malcolm Turnbull who called for an Australian ideas boom? Remember? It would last and go on forever. That was what he said. It was going to provide us with jobs and growth—one of those phrases that we have all become familiar with hearing but, sadly, not experiencing. The reality is that that gap between the rhetoric and the reality is emerging more and more, because, while this government talks as though it supports innovation and would have people believe that it supports business and opportunity, it is presiding over the erosion of the opportunities for Australians to get the skills they need for an innovative economy. Our STEM standards continue to fall as this government pulls money out of schools hand over fist and walks away from equitable, genuine needs based funding. The TAFE sector across this country, particularly in my state of New South Wales, is a shadow of its former self—a broken thing. The sector of TAFE continues to shrink, and arrogant LNP governments are taking away the opportunity for young people and people who seek to retrain through TAFE to access the new knowledge that they need to participate in a genuinely innovative economy.

We can't just relax our regulatory regime to ensure Turnbull's fabled ideas boom happens. It's hard to have a go when you can't get a go—as the Prime Minister often wants to tell us— and if you cannot get proper education or access training for the roles that innovation offers up. When the government fails, that means long-term suffering for Australian people—for young people and people who find themselves in industries that no longer need their services and who want to retrain. Long-term unemployment is what this government constructs a recipe for. It's wasting the most precious resource of this country: the Australian people.

When the government last introduced this regulatory sandbox, it was such a failure that only three businesses applied. Compare this with 146 in the UK and 30 in Singapore, after only one year of operation. That's what happens when the government actually does its day job properly and gets the settings right. It's happening in other countries. It's just that we've got an incompetent government at the helm. We need more than just the lifting of regulations to ensure the future success of our fintech innovation. Labor absolutely supports the creation of a sandbox to help genuinely innovative and helpful products be developed and delivered. But we will not turn away and ignore the reality that this government hasn't got a good track record of protecting Australians from those who would misuse their intellect and create things that would be of little economic or social value and perhaps even become profoundly exploitative. That's why Labor will be moving an amendment to this bill.

Labor's amendment, applying to schedule 1 of the bill, introduces a requirement for companies accessing the fintech sandbox exemptions that are created under this bill to submit a notice outlining the details of their service or product and give a sound and fulsome justification as to why the exemption that they seek is likely to benefit the public. Under Labor's amendment, ASIC will have the power to remove a company's access to the fintech sandbox exemption if ASIC decides they're not satisfied that the new service or product is actually innovative or likely to benefit the public. We need to send a message: you can't just use this as a fast track to get around all the rules and regulations that protect Australian consumers; you have to satisfy the Australian Securities and Investments Commission that it's for the common good, that it's to the advantage of all Australians and that it's a fair and ethical product.

This test is not new. It's actually common in other jurisdictions. It could've been in the government's legislation at least a term ago. But they miss the details, too often. As I said, this test is common in other jurisdictions. It's supported by consumer groups such as CHOICE, the Financial Rights Legal Centre and the Consumer Action Law Centre, and the local fintech sector has also endorsed a move for a public-interest test. FinTech Australia, in their submission to this bill, called for an official review test to ensure that only appropriate companies can be exempted from the regulations. It's a commonsense measure. If a company or entity wishes to suspend consumer protection laws, they should provide a crystal-clear and ironclad reason for doing so, and that reason must clearly meet the public-interest test.

Labor supports innovation and a smart economy which will sustain Australia well into the future and which will create the jobs that will give such satisfaction to Australians into the future. However, while this government continues to govern we will do everything we can to make sure that Australians are protected from this government's failure to do its job properly. We will ensure that consumers are protected and that vulnerable Australians are not preyed upon by people who are more interested in making money than doing the right thing, people who should not be exempted from government regulation.

More needs to be done to support our education sector so that we can produce the kinds of skilled people who will staff these start-ups and come up with the brilliant ideas that will make our lives less cluttered, more efficient and more enjoyable. If I had a dollar for every request from leaders in the innovation field for us to change how we invest in education! So many great start-ups are looking overseas to get their graduates because this government has our whole education sector running on the smell of an oily rag. It's just not good enough. The minds of our future generation are the most renewable resource that we have. We see success in places like Silicon Valley and the start-up industries in Israel. Australia should be right up there with them. The guts, the brains and the can-do attitude of the Australian spirit is fertile soil for the brilliant ideas of tomorrow to grow. I move:

The amendment was unavailable at the time of publishing.

1:34 pm

Photo of Slade BrockmanSlade Brockman (WA, Liberal Party) Share this | | Hansard source

I rise to make some brief remarks on the Treasury Laws Amendment (2018 Measures No. 2) Bill 2019. But, before I start, I will just correct the record a little. The information I have in front of me is that, actually, seven companies have entered the sandbox since 2016, and the government are happy to acknowledge that we want that number to be higher. In fact, we would love that number to be a lot higher, which is why this bill is before the Senate. Over the same period of time, the UK's sandbox had something like 89 companies make use of their provisions. So it is clear that, in what is a competitive environment, where you have financial centres like Singapore and the United Kingdom very keen to attract the best and the brightest—the best and the brightest firms, the best and the brightest individuals, those who are on the cutting edge of innovation—we need an environment that facilitates that innovation in the most effective way possible.

I also wish to pick up on something that Senator O'Neill and Senator Whish-Wilson both referenced: the concept of risk and, in particular, the idea that anything is risk free. Nothing, particularly in the financial services sector, is free, and I would contend that it shouldn't be. The role of regulation is not to lock Australians in a white room with no doors. The role of regulation is to manage risk and to balance—and allow people to balance—risk against potential rewards. People need to go into these kinds of new products with their eyes wide open. They need to understand what they are doing. But there is an inherent level of risk in something that is new. The only way of having no risk is to lock yourself in a white room with no doors. That is not what the Australian people have shown they want to do. Australian people embrace innovation. Australian people have been early adopters of many of the new technologies in the financial services sector. Giving Australian companies and Australian entrepreneurs the maximum opportunity to develop ideas within the safe-harbour provisions of the sandbox, the innovation precinct of the sandbox, gives Australian companies that opportunity to compete with other nations, like Singapore, the United Kingdom, the US, Israel and other places where people naturally think of innovation occurring. But innovation occurs in Australia, and by enhancing the regulatory environment in this way we can enhance that level of innovation in the financial services sector.

Basically, what this legislation does is allow businesses and entrepreneurs to test new products without the inhibitive need to have a financial services or credit licence from ASIC. This is very important. We have legitimate hoops to jump through to gain a financial services licence or credit licence in this country, and that is to provide a level of protection to consumers in what is a very complex financial environment. However, those hoops—that level of regulation—do provide a barrier to entry, particularly for the entrepreneurs and innovators in this space. We want people to be able to 'trial and error' these kinds of products in a safe environment, to help them to work out what works, what doesn't and what is safe to be released more widely, and then to gain access to a financial services or credit licence.

These enhancements to the legislative sandbox build on the existing arrangements. They broaden the scope, expanding who can use it, what can be tested and for how long a business can test it. The enhancements enable firms to test specific financial services, including financial advice, the issuing of consumer credit contracts and facilitating crowdsourced funding.

This is part of the government progressing policies that ensure that Australia is a leading destination for fintech, not only for talent but also for investment. We want foreign investment in Australian fintech. We need to be more responsive to what consumers need. When payWave first appeared on the market, I was very surprised that Australians and I myself adopted it as quickly as we did. I thought there would be a barrier there. I thought people would be inherently resistant to how seemingly easy it was to transfer money with very little check or balance with no signature anymore. But I and other Australians adopted it extraordinarily quickly. Consumers often drive these products into the market, but entrepreneurs are the ones who need to develop them and who need to undertake the R&D to make sure the systems work and to make sure that they provide consumers with what they want and need and, in that way, deliver better outcomes to all Australians. This is one part of a systematic approach to getting the policy settings right in this area and to support Australian fintech businesses to succeed.

I believe Senator Bragg may be speaking on this bill shortly. I know he has taken an enormous interest in this sector and through the select committee on fintech. I'm very interested to see what will come out of that, Senator Bragg. As I said, the government are committed to ensuring that we get the balance right in terms of risk. We want entrepreneurship. We want new ideas in the Australian economy. The enhanced sandbox is part of that.

1:41 pm

Photo of Marielle SmithMarielle Smith (SA, Australian Labor Party) Share this | | Hansard source

I also rise to speak on this important bill, the Treasury Laws Amendment (2018 Measures No. 2) Bill 2019, and I'm pleased to do so as a keen supporter of the fintech industry and as a keen supporter of start-ups and innovation and developments which will make life easier and better for consumers. When we're talking about issues relating to fintech and financial regulation, I think for senators on this side, like in all spheres, in particular our concern is always to make sure that we're supporting innovation, supporting growth, supporting opportunity but balancing the needs of consumers and making sure adequate protections are in place for consumers, because, at the end of the day, that's who we need to be standing up for. We've seen in this industry in recent times some terrible, terrible examples of where consumers haven't been put first and have been left vulnerable. That's front and centre of mind for Labor senators. But I believe you can protect consumers whilst also supporting this important industry to thrive.

On this bill in particular, I want to address what has been proposed in schedule 1 as well as speak to Labor's proposed amendments which Senator O'Neill recently introduced as well. Schedule 1 of this bill seeks to extend the minister's regulation-making powers under both the Corporations Act and the National Consumer Credit Protection Act. These powers will enable ASIC to provide exemptions from the Australian financial services licensing regime under certain circumstances. These powers are being established for the purpose of testing financial and credit products and services in what is described as the 'fintech regulatory sandbox'.

Senators would know that we have a select inquiry into financial technology and regulatory technology at the moment. I acknowledge Senator Bragg in the chamber; he is leading this inquiry. I'm pleased to be the deputy chair of it. What we are seeking to do in this inquiry is understand what the challenges and barriers are for Australian fintechs and regtechs in trying to grow their enterprises in their respective industries and to try to make things, for the most part, better for consumers and make regulation easier to navigate and therefore more effective. I'm very pleased to be part of this inquiry.

One of the things which has been raised in this inquiry has been ASIC's regulatory sandbox and the ability for fintechs to access the sandbox and participate in it. We've also heard about a number of other challenges from the fintech sector above and beyond the current regulatory settings that relate to financial services and product development. These are some of the issues that I'm really keen to explore. There's the issue of access to local capital. That's something which has been raised by lots of fintechs, with many having to seek equity internationally to overcome the initial start-up phase. There are also questions around access to skills and what the government can be doing to better promote STEM and innovation in education to support the skills requirements in this sector. I think this is a very important piece, because, while this government has claimed to be the champion of this sector and of start-ups and innovation, we can't do this without a greater focus on STEM education and the skill shortages we have in Australia at present. We need to make sure that firms can source local, high-quality software developers and programmers, and to do that we need to make sure that we have the education settings in place so that young, smart, talented Australians who want to go into this sector have every opportunity to do so and to take up the jobs that this sector potentially offers and can promote. So these are some of the fundamental issues that I think we need to be considering in any question about changes to the regulations for the fintech sector, and it's something that I hope to further explore as part of this inquiry.

I get that there are lots of other challenges out there for fintechs too. It's hard. It's hard when you're in the start-up phase. It's hard when you're working in new technologies and in a new space. I've worked in a business which was looking to bring a very innovative technology to a traditional business in Australia, and I remember dealing with some of the challenges which fintechs talk to me about now: where you set up, how you set up, where you find your staff, how you test things and how to be innovative in a very regulated environment. It is really challenging, and we need to make sure that those people who are taking risks and exploring opportunities are able to be supported and do that. We want, in Australia, to see innovation. We want to see small firms grow. We want to see new industries flourish, especially if they're industries that offer greater potential for consumers.

I'm really pleased that in Australia, according to KPMG, the sector is now worth around $1 billion—I think that is their estimate. So that's where they're at now, with the current settings in place. With more support and greater opportunity, who knows where the growth could be, what opportunities there are, what potential there is, what opportunities there are for consumers, and what greater benefits can come from what this industry is doing and from what is being done in the regtech space as well? So I look forward to our inquiry continuing its work, I look forward to us reporting back, and I look forward to see what we can do to make sure we get that balance right between supporting this important sector, making sure that consumers are protected and making sure that good things for consumers come out of this industry and come out of innovation and growth.

In reference back to the sandbox, we get that sometimes you need space to innovate, and we understand the intent of what the government is trying to do. Firms granted access to the sandbox will be provided with regulatory relief and specifically exempted from regulations that have been established by the government for the purpose of protecting consumers from predatory financial firms. This sandbox will allow eligible fintech companies to test certain products or services for up to 12 months without the AFS licence or credit licence. It is important that some of these new products can be tested in a regulatory environment that determines the viability of such products. The sandbox allows innovative concepts to be tested in a more forgiving environment, freeing more consumer focused offerings to Australian and oversees markets.

The only justification for ever exempting firms from regulations which are designed to protect the public is where such exemptions could open up significant further benefit to the public. In growing our fintech industry, we are potentially providing jobs and wealth as well as products and services that can drive competition in both standards and price that will ultimately benefit consumers. We really have to remember that point, though. We don't want to see lower regulation unless the lower regulation actually means more effective regulation and better outcomes for consumers.

We know the current uptake of the sandbox is low, and it's been put to me by FinTech Australia that greater involvement of local fintechs in this sandbox would be highly desirable, so there is a need for this bill. The current sandbox that was launched in December 2016 has seen only seven entities participate, while 44 applications have been submitted. To put this into a global perspective, the United Kingdom had over 146 companies apply to use their sandbox after one year of operation, and Singapore had 30 applications in their first year of operation. Australia's current framework allows for the entry of entities with a total exposure limit of $5 million, a maximum of 100 retail clients—there is no limit on the number of sophisticated clients—and a maximum test time of 12 months. The bill provides for regulations which ASIC and the government can use to grant extensions to the framework which I have just outlined and therefore grant fintechs conditional exemptions from AFSL and ACL requirements. This will give ASIC the power to decide how exemptions will start and then cease to apply, as well as the ability to enforce specific conditions. It will allow a greater range of products and services to be tested over a longer period. Importantly, ASIC will be able to specify conditions, stipulate how entities meet these conditions, and cancel exemptions where an entity fails to meet conditions or is suspected to be not of good character.

I'm pleased to note that the bill does provide for an independent review of the sandbox provisions to be conducted one year after implementation—an important tool to ensure that these changes have the desired effect in promoting innovation in the development of financial services and products, whilst, of course, protecting consumers.

I know there have been concerns raised by consumer groups such as CHOICE. That's why Labor has proposed amendments that would require entities using the regulatory sandbox framework to apply to ASIC for approval, with the regulator only able to grant approval if they are satisfied that the proposed product or service was genuinely innovative and of potential benefit to consumers. Similar conditions are in place in foreign jurisdictions, including Hong Kong, Singapore and the UK, where, as I've outlined earlier, we have seen a significant uptake in the sandbox—a much greater uptake than we have seen in Australia.

These amendments are important, because we do not want to see regulatory relief provided through the mechanisms of this bill for products that are not innovative and have no prospect of providing substantial benefits for consumers. Of course, it is crucial to ensure that we address this balance always to ensure that innovation and growth in the fintech sector does not come at the cost of consumer outcomes. ASIC itself has publicly acknowledged the importance of maintaining this balance. Its Innovation Hub, established in 2015 to assist fintechs in navigating Australia's regulatory system, aims to provide the right balance between innovation and potential risk of poor consumer and market integrity outcomes. I note that Fintech Australia has also called for an official review process to ensure that only appropriate companies are able to enter the sandbox, which is in line with Labor's amendments. This bill, in establishing a new regulatory regime for fintech participants in the sandbox, provides just one of a number of examples that this parliament and the government will need to grapple with adequately to ensure that we do get that balance right in encouraging the growth of new and innovative financial products and services, whilst, of course, protecting consumers and consumer outcomes.

Many other issues have arisen in the course of the inquiry, which I'm a part of, and will continue to come up as part of that inquiry process. How do we ensure the consumer data right and open banking, with the free flow of consumer data to third parties, caters for appropriate consumer consent? Or, how do we ensure that the continued transition to cashless forms of payment does not leave vulnerable people behind? This is an issue I'm particularly concerned about as we do move towards a cashless society. What does that mean for people who are less able to access technology products which effectively replace cash? What does that mean for vulnerable people? What does that mean for the techless? While many of us in this chamber are among the tech endowed, there are people in our community who have great difficulty accessing technology and navigating technology. When that technology seeks to supersede other forms of transaction, like cash, then that does have the potential to leave people particularly vulnerable. Of course, there are other issues around natural disasters or emergencies, where you rely on these sorts of systems. I think that's something that this parliament and our committee still needs to do some work on.

In conclusion, I note that, with the greater powers and responsibilities to be at ASIC's disposal at the passing of the bill, greater capacity within its agency may also be required. That's something that requires further consideration. Ultimately, Labor wants to see a flourishing fintech sector in Australia. I think we've been supportive of this sector right from the beginning. I'm certainly supportive of this sector, and the regtech sector, and I'm certainly excited to see the future innovation and development that will come out of it. I'm very proud to be able to support measures that will ensure that sector has every opportunity to thrive in Australia and thrive locally. I am also particularly concerned to see that that growth and opportunity in the sector isn't just restricted to Sydney and Melbourne. I think there are huge opportunities in my state of South Australia for fintechs to grow and thrive—huge opportunities in South Australia. I look forward to doing everything we can as a parliament to ensure the benefits and opportunities in this sector aren't concentrated in one part of the economy and one part of our nation, in particular, but are spread more broadly throughout our country.

There are so many amazing fintechs operating in South Australia already—fintechs like Tic:Toc, an award-winning fintech which I was lucky enough to visit a couple of weeks ago, and there are many more. So much innovation is happening in South Australia in this space. As a government, we need to make sure that the settings are in place for that sector to thrive and grow and for consumer outcomes to be delivered so that we ultimately get more products on the market in this financial space which benefit consumers in the way they engage with the financial sector.

1:55 pm

Photo of Andrew BraggAndrew Bragg (NSW, Liberal Party) Share this | | Hansard source

Our agenda in this space has been very clear and consistent for some years. The Prime Minister, when he was the Treasurer, was, in many respects, Australia's first champion in the parliament for fintech. Over the last few years we have had a royal commission into the banking and financial sector where we have seen that the incumbents aren't doing a very good job. So Australians need more choice when it comes to financial products. These new choices—more competition—won't just fall out of the sky. Innovation will have to, ultimately, be the pathway for us to have more choice in this country in the financial sector.

This bill, the Treasury Laws Amendment (2018 Measures No. 2) Bill 2019, is one part of a broader agenda. As Senator Marielle Smith alluded to, we are currently running an inquiry into the fintech and regtech sector, which the Senate supported last year. The overriding agenda here is getting more jobs in Australia and having more consumer choice. As the Hayne royal commission showed, Australians need more choice, and the bridge to that choice is fintech.

Ultimately there are five large challenges, in my view, which determine how competitive or how good you as a nation will be in this fintech space. They are: capital; access to skills; taxation; the regulatory regime; and, of course, the culture. People often remark that the culture, which is difficult for a government to drive, will determine the dynamism and the nature of the products which are available on the market. Countries and jurisdictions like Israel, Singapore and California are regularly held out to be the exemplars of culture. All of those factors will be considered by the select committee inquiry.

When you talk about the key principles that you will weigh up when you're looking at regulation or legislation, as we are today in relation to this sector, I believe that you're weighing the need to innovate against the need to protect consumers. Those are ultimately your two counterweights. So every single bill that comes into this place that we propose, like this sandbox bill today, weighs up the need for our country to innovate and to deliver more and newer products against the need to protect vulnerable consumers, because it is true that the financial sector has shown a regular propensity to fail when it comes to consumer protection.

Turning to the particulars of this bill, we have a waiving of a licence requirement for two years. This is not a carte blanche approach. The regulator, ASIC, in the circumstance of having a waived licence, could still intervene within 30 days and say: 'No, that is not an appropriate idea, business or concept. There will be no waiver for you, Mr or Mrs Fintech.' Effectively, it provides relief for 24 months from having to take out an Australian credit licence or an Australian financial services licence. There are some exclusions: it can't be a margin lending product and, equally, it cannot be a derivatives product. It's taking the really complicated, confusing products, if you like, off the market.

Further, this deploys a much more flexible approach to the regulatory framework than we've seen, which recognises that this fintech environment is very dynamic and changes so regularly. The idea of bringing a bill through these two chambers every time you want to respond to a market development really is outdated. It gives the minister—in this case, a very good minister—the ability to make a regulation to change or to tweak the regulatory framework.