Jenny McAllister (NSW, Australian Labor Party, Shadow Cabinet Secretary) Share this | Link to this | Hansard source

I rise to speak on the Treasury Laws Amendment (2018 Measures No. 2) Bill 2019. Labor support the objectives of the bill. We support the establishment of a fintech sandbox to provide some regulatory relief when needed to allow innovative products and services to be brought to the market. However—and this is an important caveat—there must be adequate protections and genuine benefits for consumers. A regulatory sandbox is a closed testing environment designed for experimenting with web or software products and, in this case, a financial product or service. A sandbox provides some level of flexibility in relation to regulatory standards.

Financial technology is already a significant industry in Australia. Ernst & Young have estimated that 58 per cent of digitally active Australians are already using financial technology in their lives. We are early adopters of all sorts of technology, and it is no different in the area of fintech. Generally, we see fintech and Australian firms active across the five different areas: transfers and payments; budgeting and planning; savings and investment; borrowing and lending; and insurance. They're widely disparate areas, and the technologies that support them are disparate, but Australians generally welcome innovation where it leads to better outcomes for them.

In December 2016, ASIC launched Australia's first sandbox. After just over a year, there were only three entities using the sandbox and 15 in the pipeline. Over a similar period, the UK had 50 entities from 146 applications, Singapore had 30 applications, Malaysia had seven in the first six months and Hong Kong had nine entities use the sandbox for 11 trials. The low number of applications in the Australian context suggests that we're not doing it right. There is something not quite right, and there is a need for reform. That is why we support the objectives of this bill.

We 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. However, as I said at the beginning of my remarks, there must be adequate protections for consumers. The framework should be used by start-ups who are genuinely seeking to deliver something innovative and who provide a clear consumer benefit.

Innovation, of course, can produce significant benefits for consumers. However, not every product innovation is necessarily in the consumer's best interest. That is particularly the case in complex markets such as financial services where the risks of bad product design can have catastrophic consequences. For example, we've recently seen some very important innovations, as they might be described, by payday lenders. It's led to more online targeting; sophisticated microtargeting, in fact, of consumers; and quick loan applications for high-cost debt.

Consumer advocates like CHOICE raised concerns around consumer protection back in 2016 when the ASIC framework was introduced, and these concerns remain. That's why Labor will be moving amendments to this bill. Our amendments aim to ensure that access to the regulatory sandbox is limited to firms that are applying for genuinely innovative operations. Our amendments seek to ensure that companies accessing regulatory relief through the fintech sandbox must show that they are using it for products and services that are genuinely innovative but also that will actually benefit customers. Our amendments seek to safeguard the very purpose of providing a sandbox and ensure that the public interest is clearly established when this sort of regulatory relief is provided. We do wish to encourage firms to innovate. We do not wish to provide a backdoor for firms to avoid regulations that would apply to the rest of the industry.

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

This bill, the Treasury Laws Amendment (2018 Measures No. 2) Bill 2019, increases the length and widens the scope of exemptions that the Australian Securities and Investments Commission can grant for new entrants to the market from having to hold a financial licence. Under this bill, new entrants will be able to be granted a financial licence exemption for up to 24 months, up from an existing 12 months. And, under this bill, financial licence exemptions will be able to be provided for a much wider range of products, including consumer credit.

I want to point out to senators—especially those who were in the chamber for the legislation that we've just passed on the Hayne royal commission bill—the irony and the contradiction that, before us now, we have a piece of legislation that's going to deregulate financial markets and increase risk for investors and consumers. Have we learnt nothing? It was interesting seeing the government put up a number of speakers who got up and waxed lyrical about what a great job they are now doing bringing forward legislation to this place to protect consumers of financial products and investors in financial products. What's this? A regulatory sandbox, providing a more flexible environment for entrepreneurs to develop sophisticated financial products. You know what that spells to me? One word: risk. These kinds of initiatives will be like burley to sharks.

Why are we loosening regulations around investments and the licensing of advisers on products like this? I have absolutely nothing against the fintech industry, and I totally get the argument for developing new credit products that will help break down the power of the big banks and financial services companies and break open the market, which, of course, will have potential long-term benefits for consumers of financial products. But why are we making it easier for this industry and for potential spivs coming into this industry to rip off more Australians? Despite a royal commission, which we've all just talked about, that laid bare the horrors of 30 years of deregulation in the banking system, here we are again loosening the rules that government financial markets and those who are entrusted with other people's money for a vested interest—which is, of course, the fintech operators, fintech entrepreneurs and fintech advisers who want to flog and sell these products. This time around it's not the wonders of a perfectly free market delivering a Utopia to consumers in humankind in general; this time around it's the wonders of the digital age which, with more deregulation, will unlock potential and deliver us Nirvana. I've heard the spiel, believe me. So fintech's here to save us, and a fintech sandbox is where it's at.

Anyone who understands finance and economics 101 knows that with more complex products, with more sophistication, we get potential higher risks. We've heard all about the dangers—'Buyer beware'—in buyers being informed about financial products, and that's from licensed financial advisers. What we're looking at doing here is loosening the licensing arrangements on the sale of these potentially very sophisticated and very high-risk products. I've always had a view that I have absolutely no problem with people investing in high-risk products and developing new industries, allowing research and development and entrepreneurial flair to deliver new products in new markets. But there are sophisticated investors out there who understand the risks and who have a diversified approach to investing in high-risk products: angel investors, equity investors—people who know what they're doing. I don't want to see a high-risk market opened up to more mums and dads, to more retail investors, that's going to lead to potential risk.

Let's boil it down to a nutshell: if we could name anything that was uniform throughout the Hayne royal commission, it's simply human nature: wanting to make more money, greed and the incentive structures that led to a culture of profits before people. Humans don't always behave the way we want them to. What kind of regulations are we putting in place in this set of regulations in the legislation before us to crack down on the kinds of unscrupulous operators that, as I know from my experience working as a young stockbroker when I started my first job out of university, will be coming into this kind of market? Very soon—I'm probably going to run out of time—I will finish my contribution by giving you some examples of fintech companies that have already failed, with hundreds of millions of dollars lost to investors.

These kinds of products should be sold to sophisticated investors. We shouldn't be opening up and deregulating licensing arrangements to allow more products that, by their very nature, are high-risk products. Yes, they have high return and high potential pay-off. High risk means high return—another fundamental concept in finance. But what we're doing here is opening up high-risk, high-return products to potentially unscrupulous advisers and operators. This is not reducing the licensing arrangements for the companies themselves, the actual sellers of these products. Rather, it is reducing the licensing arrangements for those advisers and operators.

I challenge any senators who've been here during all the inquiries the Senate has held in the last 10 years, when we have heard from victims of financial crime, victims of the banks, victims of financial services companies, victims of managed investment schemes—just one example is Storm Financial—and even victims of the global financial crisis. I know there are some senators in here who have finance backgrounds, who understand economics. There are plenty of examples of highly innovative financial products that have led to catastrophe. I lay before you the global financial crisis. Remember collateralised debt obligations, CDOs—financial engineering and financial innovation at its finest. That essentially came close to collapsing our global economy. Remember the kind of suffering and devastation we saw, especially in the United States, from financial innovation. High-risk, complex, difficult-to-understand products were being churned out and sold by, in many cases, unscrupulous advisers and being sold to unwary and unwilling buyers.

Scott Ryan (President) Share this | Link to this | Hansard source

Order, Senator Whish-Wilson! You will be in continuation when the debate resumes. It being 11:45, we will move on.