One of the big questions yet to be answered when it comes to fintech is: how do we effectively regulate the industry?
Normally, banks, credit unions or any other company that lends money comes under Responsible Lending regulations, and any institution that accept deposits need to be on the government’s list of Authorised Deposit-taking Institutions (ADIs). But fintech is all about innovative solutions and new ideas - which makes regulating it without stifling it a tricky thing to do.
Here’s how a couple of the big regulatory players in the market are dealing with fintech at the moment:
AISC is responsible for not only helping fintech companies to work out which licences and regulations apply to them through its Innovations Hub, but also for making sure consumers and investors are protected when dealing with these fintechs.
ASIC has a fintech “regulatory sandbox”, which is designed to help fintechs maintain their flexibility to test new products and services for up to 12 months without an Australian financial services or credit licence. There are even plans to bump this up to 24 months, and expand what can be tested under this exemption.
Eventually, if a fintech wants to keep operating in financial services, it needs to meet the same licensing requirements as any other company and get a full licence.
Many fintechs won’t fall directly under APRA’s regulations, but they will often work with other institutions which do, like banks.
At the moment, APRA is hashing out its own approach to fintech regulation in collaboration with a number of fintech industry players. What they’ve come up with to date is a framework for a phased approach to licencing ADIs, which gives fintechs (and other small financial institutions) the chance to enter the regulatory framework under a Restricted ADI licence. This puts them on the path to become a fully regulated ADI, much like any other bank, without the limitations of a full licence.
Regulations around fintech are relatively flexible to allow for innovation. So what does that all mean for you when you download a mobile wallet app, or sign up for a loan with a neo-lender?
Many established fintechs either have their own financial licences, or their parent companies do. Others choose to partner with licensed financial providers to take care of that part of their business.
If you’re signing up to a newer service, it may be working under a restricted license. But don’t panic - to qualify for these restricted licences, fintechs still need to meet certain security standards designed to keep users safe.
Want to read more about fintech in Australia? Head over to our fintech hub for more handy articles and information.