Gerard 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.