A regulatory sandbox will make fintech innovation as easy as child’s play

A regulatory sandbox for fintech startups to develop their products is a major development that puts Australia at the forefront of an important emerging industry.

Wednesday’s release by the Australian Securities and Investment Commission (ASIC) of a consultation paper on measures to facilitate innovation in financial services, including a regulatory sandbox licensing exemption, was a watershed moment for fintech in Australia.

In a stroke, ASIC has lifted efforts to facilitate the rise of new financial startups and sent a strong signal to the market both at home and abroad that we are serious about becoming a regional and global hub for fintech.

In essence, the regulatory sandbox idea is quite simple. Conjuring fond memories of young children at play in the back yard, it basically encapsulates a safe space in which fintech startups can develop and launch their products and services. Based on a the consultation paper, and upon hearing from ASIC commissioner John Price at a Melbourne fintech meet up hosted at KPMG, I believe we have the opportunity to create a world-leading process to facilitate the growth of new fintech ideas.

The path to market for a new Australian fintech, utilising the ASIC regulatory sandbox process, could look like this:

  1. A fintech startup has a new idea for a product or service
  2. Early engagement by the startup with ASIC’s Innovation Hub on licencing and regulatory requirements
  3. The fintech startup completes the development of their product and is ready to release
  4. They enter the market via the sandbox exemption, which allows them (and importantly, their investors) to actively assess the market viability of idea with real clients
  5. In parallel with the sandbox (and upon proving the success of their product), commence/continue licence application
  6. Conclude sandbox, and commence under issued licence (whilst seeking to minimise any gap in market presence).

The regulatory sandbox would save fintech startups the onerous and often painstaking task of achieving license for ideas that may or may not work in market. On the macro-level it will accelerate the development of fintech ideas in Australia, allowing them to develop in a safe regulatory environment that will arguable give them an advantage in global markets when they are ready to expand.

There are a number of challenges I can see within the proposed framework. For example, will a fintech startup be able to get through all the stage of the process within 6 month period? It is clear that the consultation process proposed needs to be done, both with the fintech community as well as with corporate Australia.

That said, there was a positive and very welcoming reaction to ASIC at Wednesday night’s event, one that has been mirrored by prominent voices within the fintech ecosystem, such as  Alex Scandurra of Stone & Chalk, Simon Cant of Fintech Australia and various startup founders.

ASIC is encouraging members of the financial services and fintech industry and consumers to make a submission on the consultation paper by Friday 22 July. The full paper can be viewed here.

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One thought on “A regulatory sandbox will make fintech innovation as easy as child’s play

  1. Its great to see an organisation like ASIC embracing the ‘Test and Learn’ approach to startup and product development

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