A new licensing exemption will enable Australian fintech founders to test innovative services and products with up to 100 retail customers without an Australian financial services or credit licence.

The Australian Securities and Investments Commissions (ASIC) released details of the “world-first” licensing exemption on Thursday, along with a regulatory guide that includes information on Australia’s regulatory sandbox for early-stage fintech startups.

Read more: Australian startups to get access to a “world-leading” regulatory sandbox

The aim of the initiative is to help reduce the barriers for innovative products and services to enter the financial market by making it easier for fintechs to validate and refine concepts before the expensive licensing process.

Earlier this year, when ASIC proposed the licensing exemptions, Stone & Chalk chief executive Alex Scandurra said it would be a “game-changer”.

“If implemented, not only would Australia’s sandbox lead the world and leapfrog what the UK is contemplating, it would provide a strong proof towards the successful collaboration between leaders in the fintech community, ASIC and the federal treasury that started late last year,” Scandurra said.

How it works

Startups that qualify for the exemption will be able notify ASIC that they are using the sandbox instead of going through a costly and time-consuming approval process.

Then, within 12 months, they will be required to obtain a financial services licence to continue formally operating.

To use the sandbox, startups must also meet a number of obligations including:

  • Adequate compensation and dispute resolution arrangements for retail clients;
  • Have only up to 100 retail clients (no restriction on number of wholesale clients);
  • Test for 12 months only;
  • Not exceed $5 million in total customer exposure; and
  • Comply with disclosure and conduct requirements.

The exemption scheme is also only available to certain types of fintech startups and has heavy restrictions on how much they can trade during testing phase.

Fintechs providing advice or dealing in and distributing products they haven’t issued themselves are eligible for the exemption.

Fintechs that lend money to consumers or startups that operate their own managed investment schemes like marketplace lending platforms won’t be eligible.

Testing under exemption must meet the following conditions:

  • Retail client exposure must not exceed $10,000 for services related to deposit products, simple managed investment schemes, securities and payment products;
  • Services related to credit under a credit contract must not exceed $25,000; and
  • Fintech offering insurance services must not insure more than $50,000 per contract.

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