Introduction
1.1
On 11 September 2019, the Senate resolved to establish a Select Committee on Financial Technology and Regulatory Technology to inquire into and report on the following matters:
(a)
the size and scope of the opportunity for Australian consumers and business arising from financial technology (FinTech) and regulatory technology (RegTech);
(b)
barriers to the uptake of new technologies in the financial sector;
(c)
the progress of FinTech facilitation reform and the benchmarking of comparable global regimes;
(d)
current RegTech practices and the opportunities for the RegTech industry to strengthen compliance but also reduce costs;
(e)
the effectiveness of current initiatives in promoting a positive environment for FinTech and RegTech start-ups; and
1.2
The committee was due to present its final report on or before 12 October 2020. Subsequently, the committee received an extension of time to present its final report, until 16 April 2021.
Conduct of the inquiry
1.3
Details of the inquiry were placed on the committee website at: http://www.aph.gov.au/senate_FinRegtech. The committee also contacted a number of relevant organisations and individuals to notify them of the inquiry and to invite submissions by 31 December 2019. Submissions received are at Appendix 1.
1.4
The committee held six public hearings in its initial round of hearings: Melbourne on 30 January, Sydney on 19 and 20 February, and Canberra on 26, 27 and 28 February 2020. A list of witnesses who gave evidence is available at Appendix 2. Submissions and Hansard transcripts of evidence may be accessed through the committee website.
Further call for submissions and hearings
1.5
After receiving 150 submissions and conducting six hearings, the committee had initially decided to table an interim report at the end of March 2020 covering some of the issues raised with the committee and making initial recommendations.
1.6
However, since the committee finished its initial round of public hearings in February, in light of the dramatic changes in the economic and financial environment as a result of the unfolding COVID 19 pandemic, the committee decided not to press ahead with its previous timetable. Instead, on 27 March 2020 the committee re-opened its inquiry submission process to enable submitters to provide further input to the committee, with a new submissions closing date of 10 April 2020. The committee continued to receive submissions after that date.
1.7
The committee held four additional public hearings in Canberra, via videoconference, on 30 June and 1 and 14 July 2020, and via teleconference on 10 August 2020. The committee also agreed to extend the final reporting date until 16 April 2021.
1.8
Following this interim report, the committee’s final report is intended to examine further areas that have not received as much focus in the first phase of this inquiry, including the international aspects of Australia’s FinTech policy (for example, looking at: policy architecture in the region; Australia’s export policy and trade agreements; promotion of Australian firms overseas; and issues relating to international capital investment flows into Australian companies). The final report will also contain follow up on some of the issues covered in this interim report.
Structure of the interim report
1.9
The committee’s interim report is laid out in the following chapters:
the remainder of Chapter 1 provides background on the FinTech and RegTech sectors, introduces the key Commonwealth regulators and relevant work undertaken and underway by the Commonwealth Government;
Chapter 2 covers the challenges and opportunities for the sector in light of the COVID-19 pandemic, including the role technology enablers during the crisis;
Chapter 3 looks at some taxation issues relevant to FinTechs and RegTechs, such as the R&D tax incentive;
Chapter 4 provides an overview of the regulatory environment for FinTechs and RegTechs and discussion of several specific regulatory issues;
Chapter 5 examines in detail a major regulatory reform, the introduction of the Consumer Data Right;
Chapter 6 explores the issue of access to capital for FinTechs and RegTechs;
Chapter 7 discusses issues relating to culture and skills; and
Chapter 8 details the committee's conclusions and recommendations.
Acknowledgement
1.10
The committee would like to thank the organisations and individuals who have participated in the public hearings to date as well as those that made written submissions.
Background
1.11
The remainder of this chapter provides an overview and snapshot of the FinTech and RegTech landscape in Australia, the Commonwealth regulators involved in these sectors and a brief description of relevant Commonwealth initiatives underway, some of which are discussed in greater detail in the following chapters.
Overview of the FinTech industry
What is FinTech?
1.12
The term FinTech describes a broad category of innovative businesses, with FinTech Australia offering the following definition:
Organisations combining innovative business models and technology to enable, enhance and disrupt financial services.
1.13
Elaborating on this definition, the PwC Global Fintech Report 2019 defined FinTech in the following way:
Fintech is a combination of technology and financial services that's transforming the way financial businesses operate, collaborate, and transact with their customers, their regulators, and others in the industry. All types of companies, from startups to tech companies to established firms, are using fintech.
In recent years, many variations of fintech have emerged that draw on cutting-edge technologies specifically tailored for certain sectors or functions within the [financial services] ecosystem, such as regtech and insurtech.
Areas covered by FinTech
1.14
While there does not appear to be consensus on a standard classification within FinTech, companies offer products and services in areas including: money transfers and payments; savings and investment; borrowing; and personal finance management. The following categories are drawn from the EY FinTech Australia Census 2019:
Payments, wallets and supply chain
Marketplace-style or p2p solution
Asset management and trading
Identity, security and privacy
Accelerator/venture capital
Blockchain/distributed ledger
1.15
RedCrew noted that there are three main types of FinTechs, namely those:
providing a direct service to customers which are effectively in competition or opposition to the incumbent banks;
providing a service directly to the banks; and
facilitating the wider eco-system eg. intermediaries, general payment providers and providers of generic software platforms.
Consumer adoption
1.16
FinTech Australia states that FinTechs ‘use consumer-centric design to deliver products that consumers value’:
The popularity, rapid adoption and re-use of fintech enabled solutions and high net promoter scores demonstrate that fintech solutions are valued, fit for purpose products that are trusted by consumers. The speed, convenience and transparency of these solutions give consumers greater choice and control to make informed decisions. Listening to and doing the right thing by the customer builds trust, loyalty and engagement with consumers. In this way, fintechs play a key role in rebuilding consumer trust in the financial services.
1.17
Consumer adoption of FinTech is growing fast. The 2019 EY Global Fintech Adoption Index reported Australia's rate of FinTech adoption at 58 per cent (up from 13 per cent in 2015 and 37 per cent in 2017). It shows the acceptance of FinTech and the demand for services is continuing to rise. In explaining the strong growth in FinTech adoption, the report pointed to the increasing availability of FinTech services from incumbents.
1.18
One reason customers adopt new FinTech options is FinTech companies are often able to offer more innovative solutions than incumbent players. A lack of legacy systems means start-ups can respond in an agile way to consumer needs and demands. Successful FinTech companies are typically customer focused in seeking to improve financial experiences, offering services which are 'personalised, accessible, transparent, frictionless and cost-effective'.
1.19
Such innovations are now expected by consumers; EY's 2019 report into global FinTech adoption noted 'what was considered new and disruptive in 2015 has since become a prerequisite for all players.'
Benefits and opportunities
1.20
Increased adoption of FinTech and RegTech services is likely to deliver considerable economic benefits, including a potential next wave of employment growth. As noted by Mr Rob Feeney, Partner A.T. Kearney:
What we're going to find, we believe, is that there are definitely going to be some job disruptions in some of the sectors, through some of these changes. But, at the same time, many of these technologies that come through will create new jobs. Some of these jobs we're unable to perceive today. They'll involve analytics. They'll involve AI. They'll involve new technologies.
The point that we would like to make…is that we can't and we shouldn't try and stop this change. What we should try and do is harness this to create more opportunities for Australia and Australians, try and create a more competitive Australia on the international stage. We believe that will lead to this being a jobs winner for Australia.
1.21
The potential for AgTech to create and support jobs in regional and rural areas was also highlighted to the committee along with the need to ensure reliable and affordable telecommunications.
1.22
When asked about job creation, Mr Dave Stein, Head of Corporate Development, Airwallex, observed:
A quick anecdote on that is that Airwallex had zero employees 4½ years ago and now it has 400 globally and 100 here in Melbourne. So I'm a very, very strong believer, and we are as a company, that technology increases the number of jobs and does not decrease the number of jobs. Obviously, I know that there are nuances around that in terms of which jobs are created and how they're created…We're now at the point where there are companies like Airwallex, Canva and other start-ups and neobanks that are exciting for engineers and for people to work on…
1.23
As well as employment, bringing innovative products to market provides more competition and choice for consumers. As noted by Mr Feeney:
We think these technologies offer the opportunity to enrich people's experiences, create new products and services, create value beyond what exists today.
1.24
Mr Brendan Malone, Chief Operating Officer of Raiz Invest Limited, a microinvesting platform, described how it is responsive to their customers:
Just as an example: six months after we launched, the millennial customer base said: 'Hey, this is great, but we would love an investment portfolio with what we believe in. Can you create an ethical portfolio?' So we've got an ESG based portfolio. We built it, they came, and it is now the second‑biggest portfolio. Six months after that, the customers were saying: 'Hey, wouldn't it be great if you guys had super? I would love to see my super in my Raiz app as well.' They are realising that it's real time. They can see their transactions, they can see their investments and they can see what the market means to them from that education. They may see in the paper that $3 billion has been wiped off the ASX and that's X percentage. They look in their own app and they realise it's one per cent and they've lost a minimal amount. So it's an education, to say what it means when they see it on the news. So we're building our product, and it's pretty much all based on what our customers are asking, but we do want to take them on that journey.
1.25
While some FinTech companies such as neobanks are in direct competition with incumbent players, many are collaborating with incumbents to deliver the more flexible services customers are seeking. Ultimately FinTech companies are improving financial services through introducing innovative ideas which deliver benefits for consumers, for example faster and easier payment options, as well as disruption leading to increased competition in the sector.
1.26
Detail about collaboration between incumbents and FinTechs to improve the customer experience is included in Chapter 6.
1.27
While providing greater benefits and choice for consumers, achieving greater competition in Australia is challenging, as outlined by Mr Malone:
Our customers have highlighted to us how important it is to them to have an alternative to these big current players. With the likes of Raiz, our success in signing up a large number of the Australian population illustrates this. The limited competition and dominant market share of the four big banks create challenges in all aspects of launching a new fintech business such as Raiz. Those challenges are broad; for example, restrictive government policies, capital raising, toehold acquisition, customer acquisition and growing the market share just to name a few.
1.28
The challenges for FinTech and RegTech businesses to provide greater competition are covered in greater detail in the following chapters focussing on the key areas of regulation, tax, capital, culture and skills.
What is the current size and profile of the FinTech sector?
1.29
Australia has a rapidly growing number of FinTech companies. A KPMG report for the Committee for Sydney found the number of FinTech companies had grown from less than 100 in 2014 to 579 in 2017 employing more than 10,000 staff. In 2018, FinTech Australia estimated there to be more than 700 FinTech companies operating in Australia. Other key findings from the EY FinTech Australia Census 2019 include:
The top four types of FinTech companies in Australia are: wealth and investment (30 per cent), lending (18 per cent), data analytics/big data (18 per cent) and payments, wallets and supply chain (17 per cent)
15 per cent of Australian FinTech companies are less than one year old. 42 per cent have been running for 2 to 3 years, and 44 per cent have been running for over 3 years
New South Wales and Victoria are the business base for the majority of Australian FinTech companies (52 per cent and 27 per cent respectively)
Female representation in the sector has increased by more than 10 per cent since 2016, up to 32 per cent of the overall workforce in 2019
The end customer profile for Australian FinTech companies are: retail customers (44 per cent); sophisticated investors (23 per cent); banks and other financial institutions (41 per cent); small to medium enterprises and other start-ups (38 per cent); corporate (43 per cent) and government (15 per cent)
Australian FinTech companies note the following as the top 3 talent shortages: engineering/software (69 per cent); sales (41 per cent) and marketing (33 per cent)
1.30
FinTech Australia emphasised the diversity in the FinTech industry: that ‘metrics such as the size and age of the business can be helpful tools, however they may not always reflect the realities of the business’.
Global FinTech comparisons
1.31
The 2019 FinTech100 Leading Global Fintech Innovators report features the leading 50 established FinTech companies across the globe as well as the 50 emerging stars. Key points are:
Chinese FinTech companies continue to dominate the top of the list, accounting for three in the top ten with:
Ant Financial (the world's largest third party payments platform) in first place for the second year, followed by;
Singapore's Grab (which uses data and technology to improve everything from transportation to payments); and
China's JD Digits (digital technology company) third.
There is the emergence of India taking out two of the top ten positions, Paytm (largest digital payments company in India) at five and Ola (utilising its ridesharing user base Ola money is making payments easier and simpler) at eight.
Other companies in the top 10 are Indonesia's Go Jek (multi services platform) at four, China's Du Xiaoman Financial (providing short term loan and investment services) at six, Compass from the United States (US) (a real estate technology company) at seven, Opendoor from the US (makes it possible to receive an offer on a home in a few clicks and sell in a matter of days) at nine and OakNorth from the United Kingdom (UK) (specialises in small and medium size enterprise lending) at number ten.
There are more Asia Pacific based companies (42) than from any other region.
The US had 15 FinTech companies, followed by 11 in the UK, ten in China and seven in Australia.
Seven Australian FinTech companies were included with cross-border payment provider Airwallex the highest ranked firm at 32 on the top 50 (up from 49 in 2018). Challenger bank Judo was at 33 and online payment service Afterpay Touch at 47. Of the top 50 emerging firms Australian FinTech companies included mortgage provider Athena Home Loans, voice analysis engine daisee, disaster response provider Sempo and smart receipts app Slyp.
Payment and transactions companies dominate the FinTech100 with 27 in total, followed by 19 in wealth and brokerage, 17 in insurance, 15 in lending and credit, nine neo/challenger banks and 13 operating across multiple FinTech sectors.
1.32
Apart from the US, several countries have strong FinTech centres, including the UK, Singapore and Israel.
1.33
The UK has a strong FinTech sector, supported by government policy targeting start-ups. EY research, conducted in partnership with Her Majesty's Treasury in 2016, found the UK to be a global FinTech capital. The UK government set out its FinTech Sector Strategy in 2018, outlining opportunities for developing and growing the sector. The UK Government subsequently announced in March 2020 that an independent FinTech Strategic Review would be conducted to identify opportunities to support further growth in the sector, across five areas: skills and talent; investment; national connectivity; policy; and international attractiveness. The review was formally launched in July 2020, led by Mr Ron Kalifa OBE, and is due to report in early 2021.
1.34
Singapore has a strong FinTech ecosystem. Singapore's central bank and financial regulator, the Monetary Authority of Singapore (MAS), supports the FinTech industry with innovation grants, regulatory concessions (regulatory sandbox), IP protection, and other government initiatives to support the industry to grow. Singapore has 31 signed FinTech cooperation agreements with other countries (including with Australia, signed in 2016), to foster closer cooperation on FinTech and to promote innovation in financial services in their respective markets.
1.35
Israel is noted as a FinTech centre, as a result of its strong start-up culture, research and development investment in the region, and government incentives for new start-ups. In 2018, Deloitte noted the Israeli FinTech industry had experienced a significant leap forward in recent years.
1.36
Hong Kong has long been regarded as a global financial hub. It has been noted, however, that recent political developments in Hong Kong may lead to deterioration in its status as a global financial centre. This creates potential opportunities for other regional centres such as Sydney, Singapore and Tokyo to attract new investment, companies and talent in the financial services sector. It is reported that the Australian Government is considering tax and regulatory concessions to help attract capital and skilled workers from Hong Kong and make Australia an international financial services hub.
Overview of the RegTech sector
1.37
RegTech is the use of new technology in regulatory monitoring, reporting and compliance. RegTech companies typically provide software-as-a-service (SaaS) to assist businesses to comply with regulations efficiently and cost effectively. RegTech is sector agnostic and its technology solutions can be applied in any industry with regulatory and compliance requirements.
1.38
For some RegTech has been regarded as a subset of FinTech. The RegTech Association, a peak body for the sector in Australia with 150 members, provided clarification on this aspect:
RegTech is often confused with FinTech because the first sector to take note of RegTech conceptually was financial services. The RegTech industry in Australia is still predominantly focussed on financial services but this does not limit the potential across other industry verticals and where it may add significant value. RTA members have customers spanning the Government, Health Services, Telco, and Energy sectors.
1.39
The Global RegTech Industry Benchmark report indicated that the top five functional areas of focus for RegTech solutions are: data collection/reporting (55 per cent); data analytics (52 per cent); risk identification, aggregation and management (52 per cent); regulatory management information tools (48 per cent); and predictive analysis for fraud, misconduct and noncompliance (32 per cent). In addition, the primary RegTech buyer motivations, as reported by firms were: reporting data (10 per cent); processing large quantities of data (11 per cent); organising complex information (14 per cent); navigating existing regulations (15 per cent); implementing an internal compliance program (15 per cent) and implementing new regulations (19 per cent) and other (14 per cent).
1.40
While predominantly focussed on financial services in Australia, RegTech works with the following customers: insurers; government; wealth managers; consulting firms; education; superannuation funds; health services; Telcos; energy; technology/software; agriculture; regulatory agency; real estate; accountancy; manufacturing; transport; legal and consumer goods/retail.
Benefits and opportunities
1.41
Verifier outlined the benefits of RegTech:
RegTech creates a win for community and commerce by automating the outcomes the community has indicated that it wants - as expressed through its laws and regulations - and also supports the monitoring of achieving and adhering to those outcomes. In doing so, RegTech supports “trust at scale”. RegTech supports incumbents and challengers alike to adhere to community expectations (and exceed them), at the scale our markets require, and does so across more than just financial services. In financial services particularly, RegTech also has significant export potential as a result of Australia’s reputation as a country with a sophisticated approach to regulation and supervision…
1.42
The RegTech Association pointed out that there is substantial opportunity for economic growth driven by the high export potential of RegTech:
Global RegTech spending is predicted to exceed USD$127 billion by 2024, up from USD$25 billion in 2019; driven by a dramatic rise in the automation of resource-intensive tasks.
Australia’s excellent regulatory track record has led to the creation of a rich and diverse RegTech sector. Australia is consistently ranked globally in the top echelon for RegTech product development and innovation. The impacts of RegTech include increased efficiency, productivity and lowering of costs.
1.43
The RegTech Association offered the view that 'Australia has the skills, infrastructure and experience to lead a global Centre of Excellence for RegTech, providing a vehicle to improve our ranking in global innovation, and to make RegTech a key aspect of 'Brand Australia'.
Barriers to the uptake of RegTech
1.44
Ms Lisa Schutz, Chief Executive Officer, Verifier, spoke about the effect of regulatory uncertainty and suggested the need for regulators to provide ‘negative assurance’ to the design of innovative approaches to managing regulatory compliance:
…if you think about how compliance works, historically it is a very manual process. So everything about our regulators is geared up for the manual processes. So if they didn't like something they would say, 'Change your processes,' and 100 people would start doing the process differently. The trick with regtech—and I think the elephant in the room, if you like, for policy around this—is that we're going from manual processes where you go in and you say, 'I don't like the way you're doing blah; change it,' to people like Verifier are building machines to do it. The trick with that is that, if you get the machine design wrong, you can't just tell it to do it slightly differently. So you are never going to get the big investment until there is some de-risking. That's where AUSTRAC have led. They managed, for whatever set of reasons, to see that and were much more active around 'not noes'.
1.45
Despite the opportunities RegTech can provide to transform compliance processes, the committee heard that:
The commitment in financial services to remediation above transformation is stifling the potential of RegTech. In many cases, the current focus is on addressing issues of the past, instead of reimagining the way that businesses could be transformed with processes that deliver superior transparency, efficiency and productivity, into the future.
1.46
Although recognising the benefits of RegTech, this focus on remediation was confirmed by the Australian Banking Association (ABA):
Banks see it as a competitive advantage. Regtech has the ability to reduce operating costs significantly. I think banks will drive this very quickly; it's just the capacity. Open banking is a focus, as are a number of the royal commission recommendations.
1.47
When asked whether there are any initiatives underway to promote the uptake of RegTech, the ABA replied 'not within the ABA'. While acknowledging the statement of the ABA, the Commonwealth Bank of Australia (CBA) advised the committee that '[o]ver the course of the last three years, CBA has moved to accelerate our understanding and adoption of RegTech' and outlined a number of key initiatives that have been undertaken.
1.48
Other barriers for RegTechs include access to capital and long sales cycles:
The sales cycle is linked to the difficulty in raising capital for businesses with a long sales cycle and protracted periods of resource-draining intensity but low cash flow. Investors would like speedier returns and RegTech by its nature needs a different and more patient capital style of capital investment. This is also where RegTech differs from FinTech where it is reported by Accenture that in 2019, FinTechs in Australia raised $400 million in just six months as a disruptor or partner to financial services. We do not have the data to support the fundraising for RegTechs at this time but would estimate that this would be a much lower figure and many are still self-funded….
Overseas comparisons
1.49
The RegTech Association reported that Ireland and Singapore 'offer some excellent comparisons showing innovation done well' and provided case studies.
Role of the Commonwealth government
1.50
The National Innovation and Science Agenda (NISA) was announced in December 2015 and set a focus on science, research and innovation as long term drivers of economic prosperity, jobs and growth. The government announced a $1.1 billion package over four years for 24 measures, many relevant to FinTech companies. The package 'promotes commercial risk-taking and is aimed at encouraging early-stage investments in innovative Australian companies—such as start-ups—so they are better able to find the capital and support they need to successfully develop their idea and bring it to market'.
1.51
In 2016 the then Treasurer, the Hon Scott Morrison MP, released the paper, Backing Australian FinTech which detailed creating 'an environment for Australia’s FinTech sector where it can be both internationally competitive and play a central role in aiding the positive transformation of our economy'.
Relevant agencies and regulators
1.52
There are a number of government agencies and regulators that play a role in relation to the FinTech and RegTech sectors, including:
the Australian Securities and Investments Commission (ASIC);
the Australian Prudential Regulation Authority(APRA);
the Reserve Bank of Australia (RBA);
the Australian Competition and Consumer Commission (ACCC);
the Department of Industry, Science, Energy and Resources (DISER);
the Commonwealth Scientific and Industrial Research Organisation (CSIRO);
the Australian Transaction Reports and Analysis Centre (AUSTRAC); and
the Department of Foreign Affairs and Trade (DFAT).
1.53
The role of each agency is briefly outlined below.
Australian Securities and Investments Commission
1.54
ASIC is Australia's corporate, markets, financial services and consumer credit regulator. One of its key functions in regard to the FinTech sector is the monitoring and promotion of market integrity and consumer protection in relation to the payments system. It does this though promoting the adoption of approved industry standards and codes of practice, the protection of consumer interests, community awareness of payment system issues, and sound customer-banker relationships. Since 2018 ASIC has had 'an explicit mandate to consider competition matters that affect the performance of our functions and the exercise of our powers'.
1.55
In March 2015 ASIC established an Innovation Hub to assist FinTech and RegTech businesses navigate Australia's regulatory system in the financial services sector, without compromising investor and financial consumer trust and confidence. The Innovation Hub seeks to streamline ASIC's engagement with the FinTech and RegTech sectors and act as a 'one-stop-shop' for tailored resources and guidance.
1.56
ASIC has also formed a Digital Finance Advisory Panel (DFAP) to assist in informing how it should focus its efforts with the FinTech and RegTech sectors. The DFAP meets quarterly and is comprised of FinTech industry representatives, academics, and other national authorities and regulators.
Australian Prudential Regulation Authority
1.57
APRA is a prudential regulator tasked with protecting the interests of depositors, policyholders and superannuation fund members. Its core role is supervising banks, credit unions, building societies, general insurance and reinsurance companies, life insurers, private health insurers, friendly societies, and most superannuation trustees.
1.58
APRA stated that where FinTech or RegTech companies seek a licence or provide services for regulated entities, it seeks to allow for opportunities and innovations without undue policy or supervisory barriers, while ensuring risks are appropriately managed.
1.59
In 2018 APRA introduced a restricted authorised deposit-taking institution (ADI) licensing framework to provide an alternative pathway to a full licence for new banking entrants. The restricted framework has been successfully used by a number of FinTechs and a number of others are in the process of being licensed.
Reserve Bank of Australia
1.60
The RBA is the principal regulator of the payments system in Australia, and part of its mandate is to contribute to promoting efficiency and competition in the payments system. Under the Reserve Bank Act 1959, the Payments System Board (PSB) is responsible for determining the RBA's payments system policy.
1.61
The RBA further explained its role to the committee:
The Bank seeks to ensure that new players in the payments industry are able to compete fairly and that there are no unwarranted restrictions on their participations in payment systems. Doing so inevitably involves managing the balance between the competition new participants can bring and any additional risks that arise, particularly where new entrants are not subject to the same form of prudential regulation as incumbents. The Bank also strives to have a regulatory regime that is technology neutral and best able to support competition and innovation in the payments system.
Australian Competition and Consumer Commission
1.62
The ACCC is the lead implementation agency for the Consumer Data Right (CDR) initiative. It has undertaken significant preparation ahead of the commencement of the CDR in banking, which is scheduled to roll-out for consumer data about credit and debit cards, deposit accounts and transaction accounts from 1 July 2020, and after 1 November 2020 for mortgage and personal loan data. The ACCC engaged extensively with stakeholders via policy consultations to develop the CDR rules, and also consulted with FinTechs seeking accreditation as data recipients in the banking sector.
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The ACCC provided the committee with details on its broader approach to developing the CDR rules:
The approach that we have taken for banking, and which we will take for new sectors as the CDR is rolled out, is to develop a core set of rules that are common across sectors, with sector-specific issues addressed in schedules to the rules. Bringing on new sectors may also necessitate changes to the rules that are common across sectors.
1.64
During 2020 the ACCC will also undertake preparation for the roll-out of CDR to the energy sector.
Department of Industry, Science, Energy and Resources
1.65
The department oversees or is involved in a number of initiatives that aim to assist growth of the Australian FinTech sector. These activities include:
developing a National Blockchain Roadmap to highlight the opportunities for blockchain technology across the whole economy and examine key issues such as regulation and standards;
administering a number of programs (either solely or jointly with the Australian Taxation Office) that aim to create favourable environments for sectors and firms looking to invest in FinTech opportunities in Australia, including the Early Stage Venture Capital Limited Partnerships, the Venture Capital Limited Partnerships, and the R&D Tax Incentive;
administering the Entrepreneurs' Programme that provide eligible small and medium businesses with support and advice;
working with the Department of Home Affairs to ensure that Australia's migration program creates pathways for industry to access skilled and specialised workers that cannot be found locally;
administering the Women in STEM and Entrepreneurship grants program and the Boosting Female Founders initiative; and
administering the Cooperative Research Centres Program aimed at lifting levels of industry-research cooperation.
National Meeting of Digital Economy and Technology Ministers
1.66
A newly established National Meeting of Digital Economy and Technology Ministers, convened by Commonwealth Minister for Industry, Science and Technology, the Hon Karen Andrews MP, took place on 15 May 2020. Ministerial representatives from all Australian jurisdictions took part, and discussed coordination of digital and technology policy in light of the COVID‑19 pandemic. The meeting communique noted:
Many businesses have, by necessity, had to use technology to transform day-to-day operations and pivot to different business models. The experience has revealed new possibilities of doing things differently. Concerted, collaborative efforts are required to support business to sustain potential gains from digital adoption.
1.67
Ministers agreed to establish a Digital Economy and Technology Senior Officials Group to progress several strands of work to promote more connected digital economy and technology policies across the Commonwealth, State, and Territory governments, namely:
mapping the digital economy policies and business support services needed to accelerate the digitisation and resilience of businesses in response to COVID-19;
complete an Artificial Intelligence (AI) and Autonomous Systems Capability Map to highlight the areas of strength and expertise to drive greater collaboration domestically, and inform the promotion of Australia as a key location for research and development, and commercialisation in these areas;
promoting pathways for digital and cyber security jobs, and identify technology led deregulation projects to support the growth of Australia’s digital economy and help reduce the compliance burden on business; and
working together to identify a collaborative project on addressing the digital divide and increasing digital inclusion.
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The ministerial group will meet three times a year on an ongoing basis to progress this agenda.
Commonwealth Scientific and Industrial Research Organisation
1.69
CSIRO is Australia's national science agency, and Data61 is the data and digital research unit within the broader agency. Data61 works in technology domains such as FinTech and RegTech, and CSIRO also carries out technology research in AgTech, EnergyTech, MedTech, and GreenTech. CSIRO's areas of technology research relevant to FinTech and RegTech include machine learning, privacy and private computing, blockchain, financial risk modelling and legal informatics.
Australian Transaction Reports and Analysis Centre
1.70
AUSTRAC regulates more than 15 000 Australian businesses, including major banks, the financial services sector, casinos and single-operator businesses in the money remittance, digital currency exchange and gambling sectors. FinTech businesses may offer services that are regulated by AUSTRAC, such as lending, issuing a debit card, money remittance and digital currency exchange. AUSTRAC requires reporting entities to take preventative measures to identify, mitigate and manage the risk of their services being used for money laundering or terrorism financing.
1.71
AUSTRAC engages with FinTech partners through the FinTel Alliance and has established an Innovation Hub which allows FinTech Alliance partners to collaborate, co-design and test new and innovative technology solutions. AUSTRAC also engages with the RegTech sector to ensure that RegTechs develop products which meet the compliance needs of reporting entities.
Department of Foreign Affairs and Trade
1.72
DFAT supports Australian FinTech and RegTech providers by shaping an 'enabling environment' for those providers to operate and compete in overseas markets. DFAT seeks to foster an enabling market through shaping international rules, supporting trade initiatives (particularly with regard to harmonisation of standards and regulatory cooperation), and advocating to other governments the importance of minimising any trade distorting impacts when considering rules affecting trade.
Specific measures
1.73
The Commonwealth Government has a number of initiatives underway relevant to the FinTech and RegTech sectors.
Open banking
1.74
Open banking is leading the evolution of the financial services industry, designed to put customers in control of their data to create more personalised experiences and customer focused services. In Australia this will be facilitated by the Consumer Data Right (CDR). The European Union’s regulations in this area are the Payment Services Directive (PSD2) and General Data Protection Regulation, while the UK has an Open Banking regime.
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The introduction of a consumer data right in Australia was announced in November 2017, with the aim of improving consumers' ability to compare and switch between products and services. It will also ‘encourage competition between service providers, leading not only to better prices for customers but also more innovative products and services'. It will first apply to the banking sector, to be followed by the energy sector and then telecommunications. It will be introduced in phases, with consumer data for credit and debit cards and deposit and transaction accounts of the major banks made available under the scheme on 1 July 2020. Open banking is discussed in greater detail in Chapter 5.
Tax changes for early stage investment
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The measures listed in Backing Australian FinTech include the following to incentivise investments in eligible early-stage innovation companies that have high-growth potential:
a 20 per cent non-refundable tax offset on investment capped at $200,000 per investor per year; and
a new 10 year capital gains tax exemption for investments held for 12 months.
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In relation to venture capital, the government indicated that it would ensure FinTech start-ups can be eligible for venture capital tax concessions. The reforms which commenced from 1 July 2016 are:
limited partners in new Early Stage Venture Capital Limited Partnerships (ESVCLPs) will receive a 10 per cent investor tax offset on capital invested during the year;
the maximum fund size for new and existing ESVCLPs will be increased from $100 million to $200 million; and
ESVCLPs will no longer need to divest a company when its total assets exceed $250 million.
The new payments platform
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The New Payments Platform (NPP) is a collaborative effort between 13 banks and financial service providers which provides payments infrastructure to facilitate faster and more convenient banking for customers such as real-time money transfers. Operating 24/7, 365 days a year, with the ability to use a PayID as an alternative form of banking ID to BSB and bank account numbers. It also allows innovators to build on top of the infrastructure to develop products such as Osko by BPAY which enables real time peer-to-peer payments.
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An Application Programming Interface (API) is a software intermediary that allows two applications to talk to each other. APIs play an important role in helping innovators and third parties to use the NPP's capabilities. The NPP API Sandbox helps developers to learn and test the NPP's capabilities via sample APIs.
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The RBA has reported that the 'transaction volumes through the NPP have continued to grow steadily. Although the full roll-out of NPP services by the major banks has been slower than expected'. The RBA indicated that a review undertaken by the RBA and the ACCC 'made a number of recommendations to improve access to the system and promote the timely roll-out of NPP services and new functionality'.
Entrepreneur visas
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From September 2016 the government introduced a new Entrepreneur Visa to target foreign entrepreneurs with innovative ideas and financial backing from a third party. In March 2019 it was reported that documents released under FOI revealed that 25 visa applications had been lodged under the entrepreneur stream of the Business Innovation and Investment Subclass 188 visa since its launch in September 2016. Of these only eight were successful. It was reported that these figures include secondary applicants such as family members which means the number of entrepreneurs 'could be as few as two'. The report stated that 'restrictive funding requirements and a lack of awareness of the scheme contributed to its failure'. It pointed to a revamped version of the program being trialled in South Australia.
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On the Department of Home Affairs website under visas for innovation, the Supporting Innovation in South Australia (SISA) is listed as a new visa arrangement 'designed to attract foreign entrepreneurs to take forward innovative ideas and launch seed stage startups'. It notes that SISA is being piloted in South Australia from November 2018 to November 2021 and if successful will be rolled out nationally. Also under visas for innovation is the Global Talent Independent program (GTI) launched on 4 November 2019 which is designed to 'attract skilled migrants at the top future focused fields to Australia'. The website also lists a Global Talent Employer Sponsored visa which 'allows employers to sponsor overseas workers for highly-skilled niche positions that cannot be filled by Australian workers or through other standard visa programs'.
Investment in start-up incubators
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As part of the then Prime Minister's innovation statement in 2015, the government announced $8 million for an incubator support program which commenced on 1 July 2016. In September 2016 this was increased to $15 million over four years. In March 2019, the Minister for Industry, Science and Technology announced five new incubator projects in the agricultural technology, resources and energy sectors would receive $2.2 million.
Global landing pads
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In 2016 the government announced landing pads, managed by the Australian Trade and Investment Commission, which would provide market-ready Australian start-ups and scale-ups with access to five global innovation hubs in San Francisco, Tel Aviv, Shanghai, Berlin and Singapore. The landing pads cost $36 million over five years. In practical terms the landing pads provide workspace for up to 90 days along with access to coaching, investors, customers, training and networking events. Austrade advised the committee that '[a]s at September 2019, a total of 254 companies have accessed the Landing Pads program'. This includes:
81 participants in boot-camps which are sector-focused delegations delivered in collaboration with ecosystem partners for shorter intensive programs that combine educational and market testing elements.