06 February 2020

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

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 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, our particular concern is always to make sure that we're supporting innovation, supporting growth and supporting opportunity while balancing the needs of consumers and making sure adequate protections are in place for consumers, because, at the end of the day, they are who we need to stand up for. We've seen in this industry in recent times some terrible, terrible examples of cases 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.

I want particularly to address what has been proposed in schedule 1 of this bill as well as speak to Labor's proposed amendments, which Senator O'Neill introduced earlier. Schedule 1 of the 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 Committee into Financial Technology and Regulatory Technology at the moment. I acknowledge Senator Bragg in the chamber; he is chair of this committee. I'm pleased to be the deputy chair of it. What we are seeking to do in the committee's inquiry is to 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 have 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 do to better promote STEM and innovation in education to support the skills requirements of 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 startups 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. 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 in Australia want 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 it's 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 an 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, bringing more consumer focused offerings to Australian and overseas 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, which 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 provides for an independent review of the sandbox provisions to be conducted one year after implementation. That is 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? 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 move towards a cashless society. What does it mean for people who are less able to access technology products which effectively replace cash? What does it mean for vulnerable people? What does it 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 it has 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 need 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 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 the 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.

6 February 2020