Businesses will get more financial choice, non-bank lenders a more level playing field, and innovation a boost from new initiatives to the finance industry such as a regulatory “sandbox”.
In this extract from Tyro’s submission to the Australian Securities and Investments Commission (ASIC) into Further measures to facilitate innovation in financial services, we explain it is essential these steps are made to spur on innovation and that no less than a healthy Australian economy is dependent on it.
These are my answers to questions raised by ASIC in Tyro’s submission.
Do we need extra measures to facilitate innovation?
Tyro welcomes ASIC’s initiatives seeking to build a regulatory framework that enables innovation. The regulatory sandbox scheme which allows early-phase businesses to test their products in a controlled environment is another much-needed step.
It means more entrepreneurs will spend more time building business ideas and less time trying or failing to meet complex financial services regulations.
What are the benefits?
Smart public policy and smart regulation is the source of sustainable competitive advantage for Australia in its ambition to become a leading Asian financial services hub.
We encourage thinking of new entrants and innovators as not adding to the balance risk but rather de-risking the financial systems and markets by delivering transparency and efficiency through automation, data and algorithm.
The new fintech products imagined, tested and launched by the new generation of entrepreneurs range from targeting consumers to businesses, from helping them to visualise and manage their financial affairs, to obtaining better deals, to fund personal lifestyle or business growth or to manage or transact on the customers’ behalf.
The development of these solutions has huge potential to improve customers’ financial outcomes, to bring transparency, integrity and efficiency to the financial services space and to drive productivity growth in the business community.
Do you support the need for a testing business to be ‘sponsored’ by an industry organisation?
It is in the public interest to create an open environment where innovation and competition can thrive. Australia is one of the most consolidated markets in the developed world. The banking space is dominated by an oligopoly of four major retail banks.
The regulatory sandbox must be a trusted space where disruptive entrepreneurs can try their new products without fear of seeing their endeavour stifled or their IP divulged under the influence of the dominant incumbents.
The reality in Australia is that its associations, hubs and accelerators are dependent on the funding from the establishment. They are unsuited to be sponsors controlling the access of start-ups to the regulatory sandbox.
Only the regulator can be trusted and ensure open access to and fair and level playing field terms in the regulatory sandbox.
To expose the working of the sandbox to the influence of the incumbents is like “putting the fox in charge of the hen house”.
What would the role of ASIC be?
It has to launch the “sandbox in the sandbox”. ASIC has to build the skills in the new world of financial and regulatory technology in-house. It has to experiment whether the current framework of six months, a limit to 1,000 customers and $5 million total exposure are the right rule settings. They might or they might not.
The regulator being responsible for assessing and approving a testing business would allow ASIC to build the skills and gain the experience to continuously experiment, learn and adjust the rules in the sandbox.
Fintech start-ups and fast-growth companies cannot thrive in an environment that requires years to deliver the critical prerequisites. The reality is that in the world of digital start-ups, companies that have to deal with years will not be created or will fail to scale up.
The importance of ASIC to develop the in-house skills and frameworks extends far beyond the financial industry. The prosperity of Australia in the digital century is at stake.