What’s the legal landscape for fintechs in Australia?

In recent years, fintech companies have been launching in Australia at an enormous rate. The growth of the fintech sector has led to the government regulating the burgeoning industry.

Stacey Hester, Head of Legal and Compliance at Indue, shared what the legal landscape now looks like for the industry.

New rules for fintech companies

Hester explained that over the past year, the Australian government has targeted fintech as a key area for development.

“It has changed the law to allow for crowd-sourced equity funding for start-ups,” she remarked. “Particularly, it has a regulatory ‘sandbox’ that allows entities to experiment without needing to have a licence to operate, and introduced tax incentives for early stage investors to boost investment in start-ups.”

Hester added that the government plans to introduce legislation to enhance the sandbox – the testing timeframe will be 24 months and businesses can try out a broader range of financial products and services without a license.

What are the risks for fintech firms?

Hester noted that companies operating in this sector face some dangers. One of those is the large investment for young start-ups.

Providing financial services and products in a highly regulated market such as Australia is quite expensive for start-ups, she warned. This warning comes in spite of the government’s reduction of barriers for entry into the industry (such as allowing start-ups to “play” in the fintech space without a license for a certain period of time).

Another financial and legal risk to Australian fintech firms is that once their time in the sandbox is up, they must obtain relevant licences. Depending on the company, Hester commented, that could be an Australian Financial Services licence or an Australian Credit licence.

Why choose Aussie fintech companies?

Hester points out that Australia’s financial regulations protect clients: “Australia prides itself on its financial stability and consumer protections, so customers can feel safer when dealing with Australian-based fintechs.”

Australia’s regulations establish strict standards for the conduct of financial firms as well as disclosure requirements for financial services and product providers; if these companies don’t follow those rules, they’ll be penalised severely.

Furthermore, the ‘open banking’ regime proposed by the Australian government should benefit consumers and businesses by allowing fintech firms to develop products and services tailored to customers.

There’s cause for confidence

Hester feels optimistic, not only about the current legal landscape for Australian fintechs, but for future regulations as well.

“The Australian Government has a continued focus on fintechs and innovations,” she said, “so it is likely that further legislative change in the area will help, rather than hinder, innovators in the industry.”

Although the field is still developing, the legal landscape will allow for it to flourish. Thanks to the government’s encouragement of the fintech sector, it’s likely to be a mainstay in the market for a long time.

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