22 Mar “Backing Australian Fintech” – is it going far enough?

It is refreshing to hear the government speak so positively and enthusiastically about changes to Australia’s regulatory framework. And the speed at which things are moving is amazing. FinTech as a major focus in the innovation agenda makes a lot of sense and it is really encouraging to see the government’s honest focus on making it work.

What I am wondering, though, is whether the vision shared in the report by Treasurer Scott Morrison is actually achievable. It seems completely opposite to what our regulators have been created for. In essence, regulators are put in place to manage risk:  risk to consumers, businesses and Australia as a country. In addition, Australian culture as a whole has developed a strong personal aversion  to risk taking. How can that be turned around?

Regulatory Sandbox Not Going Far Enough

I have spent the last few weeks extensively trawling through regulations and the Corporations Act to try to understand how to comply in the FinTech space. Well, first of all, to even find out what we might have to comply with.

So naturally a regulatory sandbox sounds amazing, and would in fact allow us to focus on building a great service instead of being slowed down by needing to search through all regulatory requirements. It will be really interesting to see the actual details of the regulatory sandbox when they come out. But reading between the lines, they only seem to pertain to ASIC’s regulatory framework.

That leaves APRA, APCA, Austrac, the RBA and possibly the Attorney General’s Department untouched.

Clarity Across Government is Needed

It seems to me that FinTech’s biggest need is not so much a reduced regulatory framework, but for FinTech businesses to be able to get clarity on what is actually relevant to them. And not from a single department, but across all of government as a whole.

But the standard response I have been getting over the last few weeks has been: “We cannot give any legal advice. You have to get your own independant legal advice.” Doing that costs thousands of dollars, and as lawyers are all about minimising their own risk as well, the process seems to lead to the worst case advice where a maximum level of regulatory burden is advised, rather than a focus on creatively applying concepts to allow innovation.

Government, FinTech and Consumers Lose Out

By taking this approach the government misses out on a productive exchange about regulatory interpretation. One example from our experience as a fairly typical Fintech startup: if a  startup is facilitating payments from one Australian bank account to another, then common sense would suggest we would require no additional AML/CTF identification or reporting, as both parties have already been identified and are reported on by the banks that hold their bank accounts.

While this seems to be common sense, I was not able to find anyone within Austrac to approve this, leaving us with only the option of much higher onboarding costs for new clients. Costs that are completely wasted, but that the consumer has to wear.

Another example is ASIC, where I had to read hundreds and hundreds of pages to ascertain whether Promis would fall under ASIC’s regulations. And somewhere in there was one small paragraph pertaining to software that handles data transfer as not needing to be licensed by ASIC. Can I rely on that one paragraph? Does it apply to us the way I think it might? “We don’t have more details. You need to do your own research.” was the official ASIC answer.

Having someone from ASIC to sit down and discuss our situation with, and walking away with a clear answer, would be great. But even the innovation hub warns that it cannot give legal advice. So what use is it if the people who know that piece of legislation the best cannot be relied upon to interpret it for a specific circumstance? (Until they want to fine a FinTech startup for non compliance, of course).

They Are Just Doing Their Job

And yet, I understand that in the regulator’s pursuit of reduced risk, this is the only correct approach. It is the only way to eliminate risk. But eliminating risk costs money. So the big question is how this visionary report on ‘Backing Australian FinTech’ translates into actionable steps that really help our fledgling FinTech scene to grow and prosper. And, more importantly, how it can enable more efficient service delivery to consumers.

Introduce A Regulatory Mediator

In my view, what the industry really needs is someone we might call a “Regulatory Mediator“. This service would translate what regulators demand of a FinTech startup into how that startup proposes to deal with the underlying issue, and how it might tweak their offering so that there is no regulatory issue. Vice versa, this mediator would be someone who can translate specific instances – that are so easy to understand from a common sense point of view – into an agreement with the regulator that allows a specific regulatory interpretation.

This is especially true when balancing the positive economic impact to the consumer with the potentially heightened risk. If this is what the regulatory sandbox can deliver for the Australian FinTech space, we are onto a clear winner. If it becomes just another option in the huge range of regulatory scenarios that might apply to a FinTech business, then the vision of the current government is wasted.

Let’s hope that Treasurer Scott Morrison’s vision on Backing Australian FinTech has the power to reform the FinTech landscape and help Australia become a world leader in this field.