Senate debates

Monday, 10 February 2020


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

8:23 pm

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

I rise tonight to conclude my remarks in relation to the Treasury Laws Amendment (2018 Measures No. 2) Bill 2019—the fintech bill. I guess the reason we're doing this is that we are deeply committed to more Australian jobs and to giving Australian consumers more choice. Ultimately, that is the objective of everything in this fintech space.

Today there is some very good news that, as reported by TheAustralian Financial Review, the PitchBook, or KPMG, report has announced that we have delivered a record $1.7 billion in investment into start-ups to date, which is against the trend in our own region, where we've actually seen a reduction of investment into start-ups and small businesses. In the last year, you've seen significant new companies like Airwallex and Canva emerge. These are real people with real ideas, creating real jobs which are giving consumers and small businesses new choice when it comes to doing business here in Australia. So, before you have a technical discussion about why you want to have a particular bill or a particular change to a bill, it's always worth remembering why we're doing it, and we're doing it because we want more jobs in this country and we want consumers to have a better choice.

The Hayne royal commission into financial services showed that the incumbents aren't doing a very good job, and that is why it is very important to foster and grow this fintech bridge, because, if people want more choice and more competition, this is the way to deliver innovation in this space. So one of the common threads of this coalition government over many years has been a commitment to innovation, a commitment to more consumer choice and a commitment that government will foster new ideas. We won't get into the market ourselves, because we believe in the market, but we want to make sure that the market can bring new ideas into this country.

The sandbox which was introduced as part of the National Innovation and Science Agenda has been considered to be underused, I would have to say. What we are now seeking to do is to make it more user friendly and more flexible. This is a dynamic approach which governments across the board should try to do more of. We've introduced a flexible scheme, the sandbox. It is not sufficiently flexible, so we are making it more flexible so more organisations can try it in that safe regulatory environment. Remember, this is about more jobs and more consumer choice. If you don't have a sandbox and these sorts of measures, frankly, these sorts of ideas will very quickly disappear abroad. Labour and capital are mobile, so, unless you're competitive and dynamic in responding to what the market is asking for, you can kiss goodbye to these jobs.

This dynamic approach is reflected in this bill. Labor have an amendment where they want to basically wind the clock back and make it much more rigid. The whole point of accountability in this space is very important; I grant the Senate that. I've always been of the view that we elect people into these chambers, and ultimately people are selected to go into the ministry, to make policy for the country. We should hold people to account by virtue of their legislation and the regulations they put their names to. We shouldn't be outsourcing policymaking to regulators. One of the concerning things I read in the Fin Review again today was that, potentially, regulators would be able to make policy. Regulators are there to enforce the law. Again, drawing on the Hayne royal commission, we know that the regulators haven't always done a good job of enforcing the law, so I think it's critical that we get regulators focused on enforcing the law, whether it be in relation to a large bank or a fintech—I know fintechs are very close to Senator Whish-Wilson's heart—or all of the above.

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

I don't have a heart!

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

I know you have no heart! The changes in this bill give the parliament, the government and the market the flexibility that is being asked for without ducking accountability, because, of course, a regulation can be disallowed, and financial services regulations have regularly been disallowed in previous years. So the answer here is more flexibility whilst maintaining the accountability that we all expect as Australians. What we don't want to see is a hard-coded prehistoric approach where everything is written into the law, which requires us then to come through these two chambers and spend all this time trying to change it. So regulations deliver flexibility without undermining accountability. On the other extreme, of course, you have an approach where you let the regulator set the policy, in effect putting everyone here out of work. If they're making the policy then what are we doing?

With that in mind, I want to remind the Senate that if people feel strongly about the findings of the royal commission—and they should—the pathway to more competition, more choice and ultimately more jobs in Australia is to have a flexible, dynamic approach which welcomes investment into the financial sector, especially into this fintech and start-up area.

8:29 pm

Photo of Raff CicconeRaff Ciccone (Victoria, Australian Labor Party) Share this | | Hansard source

I want to rise tonight to make a couple of remarks about the bill that's before the Senate this evening obviously in relation to the fintech industry. There's no mistaking the significance of this bill—and I know Senator Bragg mentioned this as well—and what it means for modern Australia. As other senators have also well articulated in the debate so far, it's important that Australia supports a domestic fintech industry. It supports those who want to try something new—and, dare I say, to have a go—and, more importantly, be supported by government in that endeavour. These days we call those who want to have a go entrepreneurs and we call their businesses start-ups. Some may claim that the Labor Party isn't the natural home for these types, but I must say I claim that Labor is the party for them.

In considering this bill, I want to make sure that the Senate does take note that it is important that we do our bit to ensure that this piece of proposed legislation provides enough avenues to support those who are trying to do something new, and this is what this bill seeks to achieve. It also seeks to establish what often is termed a sandbox and to provide regulatory relief to innovators. This relief, this exemption from the ordinary burdens of red tape, allows these enterprising individuals to create innovative products and services, and fast-track their delivery to the market. In allowing such concessions, however, it is important that we are carefully balancing them with the needs to safeguard consumers. These ordinary Australians for whom these products and services may have the potential to profoundly benefit their lives deserve our support as well, and it is these people whom we must also consider as we debate the merits of this particular bill in the Senate.

It is important that, in speaking on these matters, we are clear about exactly what we mean. For instance, the term sandbox, as I mentioned before, is a convenient term that is frequently used to describe the outcome of the provisions of this bill, but what exactly is a sandbox? In this context, it is really a closed test environment designed for experimenting with web or software projects. In the example of the Treasury Laws Amendment (2018 Measures No. 2) Bill 2019, these web or software projects are financial products or services. A sandbox provides an important level of flexibility in relation to regulatory standards that otherwise would not be available.

Financial technology is already a significant industry in Australia. A recent report by Ernst & Young found that almost 60 per cent of Australians are digitally active and are already using some form of financial technology in their lives. And Australians really are at the forefront of these products. We're the early adapters of many IT-innovative programs and apps on mobile phones. Australian fintech firms span across five different areas, including transfers and payments; budgeting and planning; savings and investments; borrowing and lending; and insurance. These are widely disparate areas, but Australians welcome innovation where it leads to better outcomes in all of these.

In December 2016 the Australian Securities and Investment Commission launched Australia's very first sandbox. It wasn't quite the success that we had hoped for, and since then only seven companies are using them. There were 15 in the pipeline, sure, but still only seven were in the space making the most of it. To provide some context to this number, in a similar period the United Kingdom had 50 entities making use of its regulatory exceptions; Singapore had 30; and there were nine in Hong Kong. Clearly, the settings we've got right now aren't working. Clearly, we're not where we need to be. This is why Labor supports the bill and the spirit of this bill, but we need to do a much better job and get ourselves at the front of the pack.

Labor want to see a flourishing and expanding financial technology sector in Australia. We support the establishment of a fintech sandbox to provide some regulatory relief when needed to allow for innovative products and services to be brought to the market. Nonetheless, while accepting this, we cannot allow consumers to be negatively impacted; they must have the kind of protections that they would expect and we would expect from us as politicians and as their representatives on this matter. Any framework that we seek to establish should be used by start-ups who are genuinely seeking to deliver something that is innovative and that seeks to provide a clear consumer benefit. Whilst innovation can produce great benefit, we must bear in mind that not every innovation is necessarily in the consumer's best interest. This is especially so in some financial services—a naturally complex market where bad products or service design can have disastrous consequences for individuals. Sandboxes should be for those who are seeking to make genuine innovation, not just those who are seeking to skirt the law. Labor's amendments will require companies accessing regulatory relief through the fintech sandbox provided for by this bill to show that they are using it for products and services that are generally innovative and will benefit consumers. We want innovation and we are the party of innovation, and our amendments will ensure that we have the regulatory relief that is necessary without compromising on protections for ordinary Australians.

Before concluding, I would also like to recognise the important work that is being done by members of the select committee, with Senator Bragg as the chair and Senator Smith as deputy chair. The fintech committee is looking at these kinds of challenges and the opportunities this bill seeks to address. I particularly would like to acknowledge all the senators for their work to date and look forward to their report in this place.

8:37 pm

Photo of Tony SheldonTony Sheldon (NSW, Australian Labor Party) Share this | | Hansard source

I rise in support of the Treasury Laws Amendment (2018 Measures No. 2) Bill 2019. This amendment bill is about how we nurture the next generation of innovative new financial products and services. But financial products and services don't exist for their own benefit; they are there for the people they serve and ideally will evolve for the benefit of all Australians. That is what is at stake in this bill. These new financial technology services will be an important part of our economy this century, not least for their ability to bring some much-needed competition to the financial sector as a whole. We want these companies to be able to show that they are genuinely innovative. We want them to show that they can bring real benefits to the Australian public.

After the horrors of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, almost everyone in Australia understands that big banks could do with a little bit more competition. But importantly—and I want to stress this—this additional fintech competition must come with a healthy dose of regulation as well. The need for a better-regulated industry was in fact the most important thing to come out of the hearings and the heartbreaking testimony of individuals, families and businesses who fell victim to the greed and shoddy practices of banks and other financial institutions in Australia. Without the right regulation, financial services can quickly morph into weapons of mass destruction.

Unfortunately, we seem destined to have to relearn this lesson. Let's not make the mistake again as a new era of fintech rolls out in Australia and around the world. No matter how you purchase or experience a financial product or service, offline or online, there need to be proper rules and protections for consumers. Consumers have the most important thing at stake, other than their lives, and that is their financial security and dignity. That brings us to this bill and the amendments being supported by Labor. I should say that it is not often that a senator goes to play in the sandbox—actually, in Australia we play in the sandpit, but you understand what I mean. The sandbox I'm referring to is of course the so-called regulatory sandbox which is set up whereby new financial products are beta tested. The regulatory sandbox essentially allows for these new products to be refined and stress tested before they go to market with a certain amount of regulatory flexibility so that the best product can be devised.

Labor supports this beta-testing environment, and we support the development of fintech products. There are huge opportunities here for the Australian start-up sector, for businesses generally and for individual consumers to assess a range of financial products specially designed for their needs. Labor wants to see an energetic and homegrown fintech industry that can create the products that will support the personal and business goals of individuals, families and companies. Already, more than half of Australians are active online in some form of financial technology and this is growing every day. I'm talking about fintech products that enable savings and investment; fintech products that enable payments and fund transfers, borrowing, lending and insurance. This is a huge range of different services. But we are also mindful that regulation in the most critical area of the economy is a no-brainer. It is our role as a parliament to look beyond the shiny and the new, to ensure that consumers are protected and that we can benefit from the incubation of this important new industry. This is why I stand to support this bill and the sensible amendments to it.

Innovation can really deliver for Australian consumers, but not every shiny new financial product is going to be in the best interests of consumers. Complicated financial products which are difficult to compare, or products designed to prey on those with few resources and little money, can be a safety risk. These should be subject to the best regulation we can devise. This bill will also give the regulator, ASIC, the powers to provide consumer protection benefits. We should note that these increased powers may require greater capacity. It is appropriate that ASIC is funded so that it can properly oversee the financial sector and this new emerging fintech sector, with all of its innovations and complexity.

The banking royal commission laid bare for us all the terrible human and business costs of financial products and services when they are not regulated properly. Technology can be a multiplier effect on these risks. We have seen the rise of predatory payday lenders and consumers targeted for new financial products online which are little more than a scam. We saw an example recorded in November last year from a Ms Kirsten White, who lives in Kingston on the outskirts of Hobart. She urgently needed $350 and went to a payday lender. She needed that money for a car repair, a basic tool for looking after her family. She said, 'I was under the impression that the payday lender was quite flexible with repayments.' However, her $350 spiralled into an $800 debt within half a year. Ms White believes the lender was deliberately vague about interest rates and that she was taken advantage of financially. John Cooper from Tasmania's No Interest Loans scheme talked about payday lenders who were charging 400 per cent, which of course is outrageous. He said that needs to stop. But, unlike this bill, the federal government announced plans to tighten laws around small consumer loans and leases in 2016 following a review of the sector. We are now at the beginning of 2020 and there is no legislation dealing with these matters appropriately.

To talk more about this particular bill in front of us: we have to take into account the fact that the government also has more work to be done. We need to stay vigilant, no matter how a financial product or service is delivered. We know that vulnerable groups in our community, including older Australians, people already in debt or those struggling to pay the bills from week to week, are especially at risk. Since ASIC launched Australia's first fintech sandbox in 2016, even the fintech industry itself has been persuaded by the need for better regulation. Labor will move amendments to this bill so that companies who want to access this regulatory relief must demonstrate that they are using it for products and services that are genuinely innovative and that the innovation offers a good prospect of identifiable benefits to consumers either directly or because it establishes better competition.

The message of this bill is that fintech firms who want to use this great regulation to test their products and make money while benefiting consumers should have that opportunity. I also note that regulatory sandbox rules very similar to those embodied in these amendments are present in other jurisdictions around the world that are leaders in financial technology. This includes Hong Kong and Singapore, in our region, and the United Kingdom as well. So Australia should not hesitate to follow their lead when consumers need to be protected and innovation encouraged.

Meanwhile, other experts, including the local fintech sector, are also supportive of the reforms that Labor is putting forward. In their submission to the Senate inquiry into the bill, FinTech Australia, which represents the financial tech industry, also supported reforms that ensure only the right companies can take advantage of this regulatory sandbox. Consumer advocates Choice have also raised concerns. Labor believes that these concerns must be addressed by these amendments before the bill is passed by the parliament. To bring on innovation and to bring on the enhanced competition that the emerging fintech sector promises, we want to encourage firms to innovate. What we don't want is a system where regulation protecting consumers and businesses is watered down and undermined.

Enhanced competition must go hand in hand with enhanced regulation. This is a sensible bill that supports an important emerging industry and supports the rights and expectations of consumers and businesses—expectations that have rightly arisen since the banking royal commission told us the dirty truth about how exploitative and greedy some people in our financial institutions can be. The Hayne royal commission told us some powerful lessons on how not to structure and regulate our current financial sector. We have the opportunity to get the settings and regulations right with this new financial sector.

8:47 pm

Photo of Jane HumeJane Hume (Victoria, Liberal Party, Assistant Minister for Superannuation, Financial Services and Financial Technology) Share this | | Hansard source

I would firstly like to thank those senators who have contributed to this debate. The government remains committed to establishing Australia as a leading global financial technology centre, a fintech hub. This bill builds on our work to ensure that we have policy settings in place to foster innovation.

Schedule 1 to the bill amends the Corporations Act 2001 to lay the foundation for the government's enhanced regulatory sandbox by extending the regulation-making powers in the Corporations Act. This will support fintech businesses to test their products and services without a licence from ASIC under certain conditions. We believe this measure will reduce the initial burden faced by firms as they look to innovate in providing specified financial services while also retaining important measures to minimise the risk for consumers.

The bill incorporates the government's response to the Senate Economic Legislation Committee's report on the 2018 version of the bill, including providing that an independent review of the sandbox be undertaken 12 months after its commencement.

Schedule 2 of the bill makes a number of very minor technical amendments to the early stage venture capital limited partnership and tax incentives for early-stage investor regimes to clarify the income tax law, to provide certainty to investors and to ensure that these provisions operate in accordance with their original policy intent.

The measures contained in this bill demonstrate the government's continuing commitment to promote a culture of entrepreneurship and risk-taking in Australia and will help ensure that innovative Australian businesses have access to the capital and expertise they need to grow and succeed. I commend this bill to the Senate.

Question agreed to.

Bill read a second time.