Consumer advocacy groups have voiced their concerns over proposed draft legislation for an expansion of the government’s fintech regulatory sandbox, claiming the sandbox as it sits puts both consumers and the fintech industry’s reputation “at risk”.
Choice, Financial Rights Legal Centre, and the Consumer Action Law Centre all contributed to the submission, which says the advocacy groups are “extremely concerned” about the potential risks for consumers by potentially allowing unregulated and unlicensed companies into the sandbox.
“The legislation would allow, for example, unlicensed financial advice on superannuation products, insurance and long-term investments. These services are too complex and too important to the long-term well-being of consumers to be offered without the adequate protections that the sandbox removes,” the groups state.
“Rather than watering down consumer protections, the financial industry needs much higher standards to prevent the scandals that have drained consumer savings and investments.”
The Department of Treasury is currently accepting submissions about the draft legislation until December 1. The regulatory sandbox was first unveiled in June 2016, however, it is reported that just three companies are currently using the sandbox, hence the government’s desire to broaden and review its scope.
This expansion may allow less scrupulous financial services providers into the sandbox, warns the advocacy groups, who believe these players have “appallingly low regard” for consumer needs.
The submission calls for the Australian Securities and Investments Commission (ASIC) to better vet sandbox applicants to ensure they are “genuinely innovative, will benefit consumers and are ready for testing”. The submission is also calling on the government to grant ASIC powers of intervention to act against misleading or harmful products or services.
Speaking to StartupSmart, FinTech Australia chief executive Danielle Szetho says her team is currently formulating their own submission to Treasury, but she mostly agrees with the consumer advocacy group’s calls for better vetting processes.
“We share their want to ensure the sandbox is used by legit fintech companies fostering innovative ideas — this is not a space for deception,” Szetho says.
“It’s about maintaining the long-term integrity of the industry, and we agree there needs to be good safeguards against dodgy operators in place.”
A statement from FinTech Australia in response to the advocacy groups’ message expands further on the desire for strong procedures, saying FinTech Australia is “happy to take part in discussions about how to strengthen protections for consumers alongside the expanded sandbox limits”.
“This includes working with Treasury and ASIC to find ways to ensure only new businesses, or businesses providing services in a new, improved or more efficient manner, can enter the sandbox,” the group says.
Many fintechs focus on consumer “completely”
However, Szetho disagrees with Choice and the other advocacy groups on early-stage fintechs not providing enough of a focus on consumer protection, arguing “a lot of what the fintech industry is doing is good for the consumer”.
“Many fintechs I see are oriented completely around what the consumer is thinking, and some are turning around what it means to be customer-centric,” she says.
“They have thinking about the consumer completely at the core.”
Szetho says she is in discussions with the federal government and believes there will be some “good resolutions” on the matter, noting it’s “certainly not [the government’s] intention to facilitate fraud”.
In a statement to Fairfax, Treasurer Scott Morrison said the regulatory sandbox will “help businesses overcome some of the initial regulatory burden and costs of licensing that may otherwise hinder innovative offerings”.
“To protect the consumer, fintechs will be required to adhere to robust consumer protections and disclosure requirements, including responsible lending obligations, best interests duty, and adequate compensation and dispute resolution arrangements,” Morrison told Fairfax.
FinTech Australia is also pushing for other changes to remove some proposed restrictions by the government, including the number of retail clients as part of the licensing exemptions; the $10,000 and $40,000 limits for investment and superannuation products respectively; and the ‘sum insured’ cap of $85,000 for general retail insurance.
“The current ASIC design could have been a bit more considerate to the breadth of product allowed, so we’re hoping to address some of those questions and work out where the sandbox itself sits in the context of a broader innovation hub,” Szetho says.
Additionally, Szetho says a number of fintechs approaching ASIC to be granted entry to the sandbox are receiving advice and qualifying for other exemptions, meaning they don’t require the sandbox in the first place.
“It’s starting to form an effective part of our broader innovation strategy,” she says.