ASIC commissioner John Price has set himself a daunting goal: making the regulator easier to navigate for Australia’s new wave of fintech start-ups. He talks to MPA editor Sam Richardson
If the journey of fintechs in lending can be summed up in one phrase, it is this: they have gone from curiosities to competitors. While their names still verge on the bizarre (Loan Dolphin) and their founders’ claims to disrupt mortgage broking have yet to materialise (Uno), these firms have made the leap from business ideas to functioning entities. Some have gone further: in July, Tic Toc, a digital lender part-owned by Adelaide and Bendigo Bank, began offering a ‘22-minute mortgage’. Business lender Prospa, founded five years ago, has now lent over $400m and was named Best Medium Business at the Telstra Business Awards.
To their supporters, fintechs are innovative, exciting and fast-moving. ASIC isn’t known for any of these traits. Yet ASIC commissioner John Price is determined to bridge that gap by making it easier for fintechs to get licensed and test their ideas. “Innovative products and services that are often provided through fintechs sometimes don’t neatly fall within the existing rules and frameworks,” Price explains. “There can be some grey areas.”
“Innovative products and services that are often provided through fintechs sometimes don’t neatly fall within the existing rules”
According to ASIC’s research, fintechs’ chief challenges include access to funding, speed to market and organisational competence. Unfortunately, ASIC’s licensing process can exacerbate all three. Too often fintech founders have a business model that needs testing, but “before you can test those ideas, you’re going to need a licence,” Price says. “That can cost quite a bit of money and take quite a bit of time.” Furthermore, he admits, licensing personnel have struggled to understand novel ideas, resulting in ‘paper warfare’. Something had to change and Price is hopeful that his new Innovation Hub and Regulatory Sandbox will break the deadlock.Name: John Price
Title: Commissioner
Company: Australian Securities and Investments Commission
Years in the industry: 15
John Price commenced as an ASIC commissioner on 21 March 2012. He previously worked in various regulatory roles at ASIC related to policy-making, fundraising, mergers and acquisitions, financial services and products, licensing, insolvency and financial reporting and auditing. Price was previously a member of CAMAC, an advisory body to the government on corporate and markets issues, and also the Financial Reporting Council, a body providing broad oversight of various accounting and audit-related issues in Australia.
Innovation HubFor budding entrepreneurs, Price’s Innovation Hub is a place to go before applying for a licence. Start-ups can talk directly to senior ASIC executives, including Price, and get the advice they need. They will ask about your plans and your business model, and tell you what some of the traps are going to be.
“What various statistics show us is that people who apply for a licence, and have gone through our Innovation Hub … will get their licence in a materially faster time than those who don’t,” Price explains. Entrepreneurs can request assistance on the hub’s website, and, in Price’ opinion, the attraction is obvious. “On average, you will save yourself a great deal of time and money,” he says.
Now two years old, the hub has so far assisted 25 consumer credit businesses and 35 related to marketplace lending, resulting in 36 new AFS and credit licences being granted. ASIC works with accelerators, such as Sydney’s Stone & Chalk and Tyro FinTechHub, as well as venture capitalists, consumer bodies and experts, through ASIC’s Digital Finance Advisory Committee.
Fintechs are soon to be joined by a new innovative sector, regtech, which could help brokers and lenders reduce compliance costs through automation. This time Price is determined not to be late to the party; he got started with an ASIC-organised Regtech Showcase event in September. The showcase brought together regtech start-ups and their prospective clients to help start-ups develop suitable products. While ASIC doesn’t actually regulate regtech companies, Price wants the commission to become a champion for the sector. “There’s an opportunity here for Australia to be a bit of a market leader in the region,” he says.
The lessons learnt through the Innovation Hub are affecting regulation, Price insists. “ASIC actually has quite wide waiver powers, so if there is a provision of the law that doesn’t make sense, often we have the power to turn off that provision entirely – to make an exemption – or change the way it operates.”
“It’s very important that we don’t stand in the way of innovation and change”
Regulatory Sandbox
In late 2016 this process of consultation produced its most noticeable result: the Regulatory Sandbox. The Sandbox allows start-ups to test their business models on real consumers, without a licence, for up to 12 months. According to Price, this frees start-ups from the catch 22 of testing. With the Sandbox “they wouldn’t need to burn all that time and money getting a licence to test an idea that wasn’t going to work”.
Unusually, the Sandbox is open to entire classes of businesses, Price says. “No other jurisdiction I know of has gone that far; in every other jurisdiction they want people to come in and sit down on a one-to-one basis.” There are certain caveats: while credit intermediary and advice businesses are eligible, credit and product issuers are not.
Consumer groups have criticised the Sandbox as ‘deregulation by stealth’, with the potential to harm consumers, but Price points out that the scheme’s conditions provide protection: businesses must have compensation arrangements through adequate professional indemnity insurance, be part of an external dispute resolution scheme, and may only deal with a maximum of 100 retail customers.
A flexible system
Yet for all Price’s good intentions, just three businesses have actually used the Sandbox so far, only one of which has since been licensed. The government’s response, in the federal budget, was to increase the Sandbox to 24 months, but in Price’s opinion the problem is not necessarily a lack of appetite.
Instead, Price argues that many fintechs simply don’t need to use the Sandbox: “The regulatory framework in Australia is pretty flexible. There are quite a few exemptions or things you can do with business structuring to minimise your compliance obligations or deal with compliance obligations in different ways, and I actually think that’s one of the traps that many fintechs fall into: they don’t fully appreciate how flexible the Australian regulatory environment already is.”
Not all fintechs would agree, but Price insists that ASIC is becoming more tech-savvy. “As a regulator we need to develop the skills and experience of our own staff so we’re well placed to understand developments in the market and respond, and that means a lot of emphasis on data analytics and technology,” he says.
The commission is also placing increased emphasis on ‘technology-neutral’ regulation, such as electronic disclosure forms rather than just paper.
Price is mindful that “it’s very important that we don’t stand in the way of innovation and change”. He does insist, however, that standards must be maintained. “Maybe they’re maintained in a different way to how they are at the moment, but it is very important that people have trust and confidence.”
