Enabling innovation

John Price explores the recent surge in innovative business models and explains what the regulator is doing to help them flourish.

Like colleagues in other parts of the world, over the past year, the Australian Investments and Securities Commission (ASIC) has encountered an upsurge in innovative business models in financial services. For instance, marketplace lending, crowd-sourced funding, “robo-advice”, as well as payments and blockchain technology are a few of these developments.

Innovation is no new phenomenon, but its current scale, breadth and potential, facilitated by technology, certainly is. The major differences between the innovators/start-ups and the traditional financial services incumbents – particularly the major banks – are that innovators often have limited resources in terms of time, money and access to professional advice.

As new players, innovators may also lack experience interacting with ASIC. By their nature, innovators need to be looked at carefully to see where they fit the regulatory framework. These business models can sometimes test legal boundaries.

The good news is that there is some flexibility in the regulatory obligations ASIC looks after, and we have some discretion in the way we do things. Where we can, we work with the entity to help their business and cut red tape. For example, we have some powers to grant waivers from the law or modify the law if it is impractical or inappropriate. This is not something new – over time, ASIC has issued many instruments of relief and waivers, and not just for fintechs and start-ups.

ASIC’s innovation hub

These are some of the motivators that drove ASIC to set up an innovation hub to help innovative, fintech start-ups navigate our regulatory system.

This is also consistent with the government’s deregulatory agenda. ASIC is looking to reduce red tape and improve engagement with fintech businesses – rather than to change the key principles of what we do.

ASIC is committed to encouraging innovation, particularly where it can lead to better market and consumer outcomes. But it is important to note that the innovation hub will not compromise the fundamental principles of financial services regulation or the licensing process as reflected in ASIC’s strategic objectives.

We need to maintain confidence in our financial system, including fintech businesses.

Five-point approach

ASIC’s Innovation Hub has five parts:

• Engaging with other fintech initiatives, including physical hubs and co-working spaces established for start-ups; for example, Stone & Chalk and Tyro in Sydney. From time to time, we intend to make senior ASIC staff available at places like Stone & Chalk to answer questions. We will monitor new initiatives and help where we can.
• Streamlining our processes for innovative business models. Innovative businesses can request informal help from ASIC. If innovators can meet some eligibility criteria, we will provide guidance about regulatory issues they should consider as they set up. We expect these informal pointers should help businesses prepare more complete, considered applications for licences or waivers. This will make the application processes run more smoothly.
• A new online hub on ASIC’s website – a one-stop-shop for innovative businesses to access information targeted at them.
• A senior internal taskforce at ASIC. Chaired by myself, this taskforce includes senior staff from many teams across ASIC. We want to take a “one-ASIC” approach to new business models. The taskforce will also play an important co-ordination role in some of ASIC’s new policy work, including crowd-sourced equity funding, robo-advice, as well as work following the Financial System Inquiry.
• The Digital Finance Advisory Committee, or DFAC for short.

If you are considering an innovative fintech business you can apply for help from the innovation hub. But it is important that before you approach ASIC you have a well-developed business model – you should know your business, know your customers, and know the services you’ll be providing and how you’ll be providing them. ASIC will want to know why you think your business is innovative, and what differentiates it from other firms – in particular traditional businesses.