ASIC has issued an early Christmas present for startup financial services and credit provider businesses in the form of limited licensing relief. The relief instrument and related guidance can be accessed here: ASIC fintech licensing exemption.
Requirement to hold a licence
- a business that provides financial services or products must obtain an Australian financial services licence (AFSL); and
- a business that provides consumer lending or other credit services must obtain an Australian credit licence (ACL),
prior to commencing the provision of such products or services. This can create a range of challenges for early stage businesses including the cost of preparing licensing applications, delays in bringing the products or services to market, and the requirement to hire (often expensive) personnel who can discharge the requisite regulatory competence standards. Recognising these barriers, the regulator has issued limited class order relief as part of its so-called “regulatory sandbox” framework.
Fintech licensing exemption
The new relief, referred to by ASIC as the “fintech licensing exemption”, allows eligible businesses to operate without an AFSL or ACL (as applicable) in order to test specified services for up to 12 months with up to 100 retail clients, provided that certain consumer protection conditions are met. The exemption has been designed to allow fintech startups to validate their business model before having to commit to obtain a licence (or becoming authorised under a third party’s licence).
The conditions associated with the relief are somewhat onerous and limited:
- The 100 retail client limit may prove a challenge for some startups although it is noted that there is no limit on the number of wholesale clients.
- There is a cap on maximum client exposure of no more than $5 million.
- The kinds of financial products and services that are exempted are limited to providing advice or dealing in or distributing financial products. It is noted that the issuing financial products, operating managed investment schemes and lending money to consumers are not exempted activities.
Low value non-cash payment facilities
Many fintech startups involve online or app-based payment systems. These payment systems are likely to have licensing implications. The Corporations Act and the AFSL regime regulate so-called “non-cash payment” facilities. A “non-cash payment” is a payment that is made through means that do not involve the physical delivery of Australian or foreign currency. The operators of non-cash payment facilities (NCP facilities) are required to hold an AFSL with an appropriate authorisation.
ASIC has existing relief in place for the operators of “low value” NCP facilities where the maximum balance on any one customer account is $1,000 and the maximum aggregate balance of all customer accounts is $10 million. This relief exempts the operators of such low value NCP facilities from both the requirement to hold an AFSL and the requirement to provide a product disclosure statement to clients.
For further information, please contact please contact Anand Sundaraj.