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Thursday, 19 September 2019
Page: 3647


Mr STEPHEN JONES (Whitlam) (12:46): In the consideration in detail stage, I will be moving the amendments that have been circulated in my name. This bill, the Treasury Laws Amendment (2018 Measures No. 2) Bill 2019, includes two measures amending the Treasury legislation, the first being more significant and substantial than the latter. Schedule 1 of the bill extends the minister's regulation powers under the Corporations Act and the National Consumer Credit Protection Act. These powers will enable the Australian Securities and Investments Commission, ASIC, to provide exemptions from the Australian financial licensing regime under certain circumstances for the purposes of testing financial and credit products and services in what is described as a fintech sandbox.

Schedule 2 of the bill amends the Income Tax Assessment Act 1997 to make minor changes to venture capital and early-stage investor tax concession provisions. These ensure that the provisions operate as had been intended with regard to capital gains tax transactions and the early-stage investor tax offset. This is to address issues arising from the drafting of the Tax Laws Amendment (Tax Incentives for Innovation) Act 2016, which left loopholes in the operation of this measure. I won't be saying anything more about schedule 2 except to say that Labor supports the measure.

However, I would like to address some comments to schedule 1 of the bill. That's the schedule that deals with the fintech sandbox. The purpose of schedule 1 is to facilitate the establishment and growth of fintech businesses in Australia by providing some relief from the regulatory regime at the start-up or proof-of-concept stage. This schedule contains two concepts that need to be explained. The first is fintech, and the second is the regulatory sandbox. Fintech, or financial technology, is a term much used but rarely defined. In this case it refers to businesses seeking to find new ways to use technology or to automate to improve or simplify the delivery and use of financial services.

Financial technology is already a significant industry in Australia. Ernst & Young have estimated that 58 per cent of digitally active Australians are already using financial technology in their lives, whether they know it or not. It might be through the use of a buy now, pay later application on their mobile phone. It might be by using a payment platform when purchasing a product on an online marketplace. It might be by using a financial app to intermediate between their financial institutions or indeed to access their financial institutions or banks. Australians, famously throughout the world, are early uptakers of new technology, and it is no different in the area of financial technology. New Australian fintech firms tend to cluster in five areas: transfers and payments; budgeting and planning; savings and investment; borrowing and lending; and insurance. These are widely disparate areas, but Australians welcome innovation that leads to better outcomes in all of them.

A regulatory sandbox is the second context that requires some explanation. It's a colourful term used throughout the world to explain regulatory relief provided by government for the purpose of supporting innovation and growth in an industry. This means that some firms—those firms granted access to the sandbox—will be provided with regulatory relief and specifically exempted from regulations that have been established by the government for the purposes of protecting consumers, in the case of this legislation, from predatory financial firms and practices.

The only justification for exempting firms from regulations that this parliament has said are generally in the public interest and are necessary for regulating an industry or a sector is that there is some greater public interest in providing some relief from those regulations. The public interest, in the case of the schedule to this bill is ostensibly to grow our financial technology industry, thereby providing jobs, wealth and opportunity through the growth in that sector or, conversely, as a means of improving competition within a heavily concentrated market. Hopefully, both of these public interest issues will apply in this area.

I'll address the public interest issue of developing an industry. Labor supports growing the financial technology industry and driving greater innovation in the financial sector. Australia is a leading global provider of financial services. It's a $4.6 billion export industry. Of course, we aspire to be a clever country, but I fear that this legislation won't do enough to support the financial technology industry. More needs to be done. According to Ernst & Young's annual fintech census, the key barriers to growth in the fintech industry are not regulatory in nature. Yes, there are regulatory issues, which are listed in the fintech census—this is a census of fintech companies that are already operating within the sector—but they are not No. 1 in the areas that they themselves have identified as obstacles to growth.

Fintechs are facing key constraints in both skills and access to capital—77 per cent of fintechs have reported difficulties in finding trained software engineers, for example. So, if this is the No. 1 concern, or one of the top concerns, of the fintech industry, we have to ask: why is Australia so lacking in software engineers who could be applying for jobs in this sector? Is it because of the government's ongoing cuts to education, both technical and tertiary? Regulatory relief is not going to be the answer to this shortfall in skills. In fact, right across the economy, we have a skills shortage that this government, this third-term government, seems blind to and totally bereft of any plan to deal with. So, while we support the measures within the bill, we have doubts that they will go far enough to assist the fintech industry in the issues that are of concern to them.

The language around fintech policy often tends towards the absurd. I've heard members opposite discussing their enthusiasm for fintech sandboxes, fintech boot camps, fintech launching points, fintech landing pads and fintech bridges. I hope that members opposite can extend that enthusiasm to measures that are actually going to make a difference. Beyond the fabulous flurry of fantastical fintech metaphors, innovation in financial technology is something that Labor absolutely supports.

The fintech sector is emerging as a genuine competitive threat to major players in the financial sector and is providing consumers and small businesses with new channels to access the financial services they need. It's emerging very quickly. If we turn our minds back to the report on competition within the financial services industry, a report from less than 12 months ago, the ACCC found that, while there was potential for competition in the financial services sector through the operation of fintechs, more often than not, at the moment, fintechs emerged as collaborators with incumbents within that already concentrated market, as opposed to competitors.

We want to see more small players grow into more big players within the financial services industry, including start-ups and customer owned banks. We want to see them using technology to challenge the stranglehold of the big banks and the big insurers over our financial services system because we think more competition in this space is good for consumers. In our banking sector, for example, the big four hold in excess of 70 per cent of the market. In the insurance sector, the large insurers control close to 80 per cent of the sector. So more competition is needed to drive better consumer outcomes.

Fintech has the ability to be an enabler of more competition and a means of driving better access to existing services. But we want to see this potential actualised. We want to see new players in the financial market helping Australian businesses access the finance they need to invest in their operations because the government certainly won't be helping them to invest.

According to KPMG, the fintech sector in Australia has already grown to be worth something in the order of $1 billion, and this is in an environment where the government has failed to provide fintech companies with the regulatory support that they need. We need only look back at the access to the existing mechanisms within the legislation which have existed since 2013. Only three entities have made use of the existing sandbox arrangements. We hope that the amendments that are the subject of this bill will create more flexibility and provide access to more innovation in the sector. When we compare the use of similar schemes in other jurisdictions, we see that in the United Kingdom, for example, over 146 companies have applied to use their sandbox. I know the United Kingdom has a much larger financial services sector, a much bigger population and a much bigger economy than ours, but that was in one operation—146 applications to use the sandbox in one year of operation. In Singapore, closer to home, there were 30 applications to use their sandbox in the very first year of operation as well. So if Australia has an aspiration to genuinely lead in the financial services sector then we have to lift our game in this area and we have to be able to work with industry to enable them to do the very same.

Labor supports the objectives of the bill. We want to see a flourishing and expanding financial technology sector in Australia. We support the establishment of a fintech sandbox to provide some regulatory relief when needed, to allow innovative products and services to be brought to market. Having said that, we understand that consumer advocates like CHOICE have raised some concerns with this bill. We don't want to see regulatory relief provided through the mechanisms of this legislation for products that are not genuine innovations and have no prospect of providing substantial benefits for customers. This is why I foreshadow that, in the consideration in detail stage of this bill, Labor will be moving amendments to this bill—amendments directed at ensuring that access to the regulatory sandbox is limited to firms applying for genuinely innovative operations.

The provisions of relief from regulations passed by parliament to protect the interests of consumers should be granted, when appropriate. This is why we are moving amendments to require companies accessing regulatory relief through the fintech sandbox to show that they are using it for products and services that are genuinely innovative and will benefit customers. It should be a very small hurdle to overcome. It harks back to the purpose of providing a sandbox and the public interest in this sort of regulatory relief, and that is to ensure that we create encouragement for firms to innovate, and not just provide a back door for firms to avoid the regulations that apply to the rest of the industry. With that amendment foreshadowed, we commend the bill to the House, and I look forward to hearing other contributors to this debate.