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Monday, 25 June 2018
Page: 6200


Mr HUSIC (Chifley) (16:59): We're finally here. We're finally getting to debate the Treasury Laws Amendment (2018 Measures No. 2) Bill 2018. We're finally getting a chance to talk about something the government had been crowing about some time in the fin-tech area, trying to build its credentials in the innovation arena. The faux fin-tech champion, the Treasurer, had been talking up this need for reform in the matters we'll talk about in a few moments, but after introducing it and saying that this would help encourage greater innovation in fin-tech, he couldn't even be bothered to get this debate on. Here we are in the last week prior to the break for the winter recess, and the government has now decided to bring this on. They're fixing a set of arrangements that they stuffed up the first time—the ones they lauded and said would see a raft of new financial services products being generated by very innovative firms, and then it turned out they weren't working and that these arrangements would need to be made. They always manage to hype up their actions along the way, but hiatus inevitably follows hype, with very little action being done in this area.

It is important that the more successful set of arrangements underpinned by this legislation eventuate. This bill provides an improvement to what is known as a regulatory sandbox for the fin-tech sector. The fin-techs themselves are smaller firms using technology to develop new products and services that should ultimately benefit consumers. There should be new avenues, particularly in areas where some of these smaller firms have identified (1) an opportunity to deliver better service to consumers and (2) either heavily regulated sectors or disgruntled customers—victims of profit over better customer service. Through the application of technology they are able to come up with something meaningful and much more valued by consumers.

As we well know, financial services is not an area where we would necessarily want some people, particularly disreputable or bad actors, to operate in such a way that consumers lose out. There is a very complicated financial services architecture that underpins the way things are done. However, some jurisdictions have recognised that there is some value in providing limited room to move for a lot of these fin-tech players, to suspend the usual obligations to require a set of licensing arrangements from them prior to coming up with these types of things. This fin-tech regulatory sandbox has been used, as I said, in other jurisdictions.

In the Australian context a series of boundaries were put in place for the scheme. This was launched by ASIC in December 2016. The framework allowed a total exposure limit of about A$5 million. A maximum of 100 retail clients could be affected by the services proposed within the sandbox, with no limit on the number of sophisticated clients. These are people on much higher incomes, who are probably much more familiar with investing and are prepared to invest larger amounts. There was a maximum test time of 12 months. A range of products would be permitted under that framework—for example: deposit and payment products to a maximum amount of about $10,000, general insurance for personal property and home contents to a maximum of $50,000, liquid investments for listed Australian securities or simple schemes with a maximum of $10,000, and consumer credit contracts with certain features and a loan size of between $2,001 and $25,000. That's the way that the framework had previously existed.

In other jurisdictions, as I indicated in my earlier remarks, this has been trialled and operated with some degree of success over a similar period of time as what the regulatory sandbox has operated in Australia. In the United Kingdom there were about 50 entities from 146 applications that went through their arrangements. Singapore had 30 applications, with 50 entities actually using the sandbox. Malaysia had seven in the first six months. Hong Kong had nine, with the sandbox being used for 11 trials.

I mentioned the parameters or the way in which fin-techs could use that sandbox as established by the government in December 2016 through ASIC. The difference with these arrangements is that the government did not put in a gateway arrangement to vet who was going into the sandbox. Their view was to allow people to go in and to operate along the lines that I mentioned earlier. Despite this light touch, as it was known, we need to bear in mind that in the United Kingdom, for example, there were nearly 150 applications to use their arrangements and the number of local applications to use the Australian sandbox was four over the same period of time. Despite the fact that this was a very open set of arrangements where fin-techs could go in, operate within the parameters that were set and do what they wanted, we got only four. The question is: how do we actually improve the arrangements?

If we do want to see more products and more services developed, what types of reforms need to be undertaken? The government recognised pretty early on that something needed to change, and so what they did was basically come up with a set of arrangements in this bill to free up things further. Bear in mind, people who go through the sandbox do not have to necessarily apply for an Australian financial services licence or an Australian credit licence. I should clarify that they would get conditional exemptions from those requirements for the purpose of testing some of the products that I informed the House of earlier. ASIC, under these arrangements, would have increased powers to decide how that exemption starts or stops applying and could enforce specific conditions. The theory is that this will allow a greater range of products and services to be tested over a longer period and that ASIC can specify conditions or spell out how entities meet these conditions or just cancel exemptions altogether, if entities fail to meet the conditions.

This all sounds good on paper. However, the test is whether or not ASIC will actually allow this to occur in a timely way or whether or not the government's arrangements, as outlined in this bill, would occur in a timely way or have the effect that they're expecting. We certainly do not oppose the bill, but we are watching very carefully the responses. We did watch with great interest the responses from a broad spectrum of stakeholders—people who you wouldn't necessarily think would share the same view on what is being proposed. It was interesting to see, through the Senate inquiry that examined this legislation, the responses from consumer groups and also industry sector representatives via FinTech Australia.

Consumer groups remain concerned that the arrangements that have been proposed by this bill may potentially allow unscrupulous advisors to exploit the regime to sell potentially harmful financial products and services. It's important to note that a range of groups, such as CHOICE, the Consumer Action Law Centre and the Financial Rights Legal Centre, have said that they support the intent of encouraging competition, because they understand—like a lot of people: the government, the opposition and many others, particularly within the fin-tech space—that a range of new products could potentially emerge and provide for greater competition. While they do recognise that, it's not a free-for-all. It shouldn't be a free-for-all. In fact, those consumer advocates stated:

While we support the intent of encouraging competition to create new services for consumers we are extremely concerned about the risks that this approach involves.

They went on to explain:

Rather than watering down consumer protections, the financial industry needs much higher standards to prevent the scandals that have drained consumer savings and investments.

These are some of the concerns that have been put forward.

The Treasurer was pretty dismissive of these legitimate concerns. He kept going back to the fact that innovation and financial services could create immense benefits for productivity and jobs, and pointed to protections. He said that the government had been 'positioning Australia to become a world leader in fin-tech'. Given the amount of time it takes for key reforms to get through this place, that is certainly a laughable claim. The mere fact of how long this legislation has taken to get before the parliament basically flies quite contrary to that claim of putting Australia in a position of being a fin-tech leader.

The concerns of the consumer advocates are quite clear. They believe that a gate should be put on the entry point to make sure that people are legitimate and are genuinely pursuing innovation in this space—that that be put in place to protect consumers. They're not advocating anything outrageous. In fact, the other jurisdictions that I quoted earlier have exactly the same arrangements. They test out whether or not a fin-tech that has approached for permission to use this regulatory sandbox is genuinely going to pursue something innovative or something contrary to that which will be of limited consumer benefit.

What was interesting through the Senate inquiry and through public comments that emerged through this process is that the ally, and the people who have a similar view, is the sector itself. The fin-tech sector itself has said that they think that the type of approach of applying a gateway in front of the regulatory sandbox is probably worthwhile. Back in March, through FinTech Australia and the then chair, Stuart Stoyan, they highlighted a number of things—and I'll get to the point where FinTech and consumer groups were as one in their thinking on a critical element of the architecture of the sandbox. FinTech Australia, through Stuart Stoyan, said that they believe the construct of the original sandbox was excessively rigid in approach. So much for the light touch that had been championed by the government. He supported the proposed bill, but FinTech Australia argued in favour of a series of changes to the regulations to accompany the bill, along with, importantly, strengthening ASIC's resourcing to make the sandbox more successful, which is what I want to come back to in my further comments.

Mr Stoyan advocated increasing the breadth of products that could be tested in the sandbox, including safe and established retail client products, with fin-techs acting as agents for authorised product providers. They also made these three points. It should ensure only genuinely innovative new businesses can enter the sandbox, through an appropriate ASIC filtering process. Through that one comment there is a clear connection and alignment of interests between consumer advocates and the fin-tech sector, saying that genuinely innovative new businesses can enter. FinTech Australia also indicated the need for improved oversight and monitoring by ASIC of fin-techs while in the sandbox to allow those fin-techs to receive the benefit of guidance and support, and the need for changes to the relevant investment and other limits applicable to these products, as proposed under the bill's supporting regulations, to make these limits more workable. They also argued for an official review of these arrangements. Given the fast-moving environment they operate in, you could accept or believe that that would be a worthwhile recommendation.

We had recommended to the government to have a 12-month review point but the government was highly reluctant to do so. I don't know why necessarily they would resist that. From the opposition's perspective, we weren't necessarily going to stand our ground on this in a stubborn way. I understand that the government is going to go to a 24-month review process, but it will be very interesting to see what might occur and, if anything does adversely happen in this space, what having a prompt review or a review conducted in a shorter time frame could have avoided. The government believes in its wisdom that it can wait two years—well, let's see what happens. Certainly, our view as an opposition is that there is great merit—particularly since competing stakeholders have argued the case for having a gateway at the front of this regulatory sandbox—in pursuing that, and we will be talking about that further down the track because there is probably some value in having that sandbox in place.

One of the reasons why is another matter that was raised and that I alluded to earlier, and that is about ASIC resourcing. If you're looking at why this sandbox hasn't worked, there are probably two arguments. One would be that the arrangements as they currently exist are too restrictive and you've got to broaden them out. The other reason why it's not working is the awareness of these arrangements: the arrangements themselves are simply unknown. The people aren't using them whatsoever. They're either not finding the value of it, hence the view that it's too restrictive and not generating value, or fin-techs simply don't know that this thing exists.

Either way, if the government's response is to free up, to liberate, the restrictions, in part responding to industry criticism, the key will be whether or not ASIC will have the resourcing to be able to do some of the things that I said earlier. There are a range of different things that ASIC will be permitted to do through the regulation-making powers that are underpinned by this legislation, and the question is whether or not they will be able to do them.

The concerns from the opposition, which have been remarked upon in a series of bills that have been debated in this place, are about the resourcing of ASIC. We have genuine concerns about whether the resourcing is strong enough and whether or not there are enough people to be able to do some of the things and, particularly in the area where innovative financial products are being developed, to make the calls to see this happen.

I said earlier that the government had held up a number of reforms. This was one of them. The other reform that has been argued for for years was rushed. A set of changes were rushed through last year that we urged the government not to do because they were Mickey Mouse changes; they would be way too complicated; and hardly anyone would use the arrangements in terms of equity crowdfunding. We saw the government come back in September last year with the arrangements that they should have put in place, and they didn't. Those have been held up in the Senate. Why? It is because the government couldn't really give a toss. They had no interest whatsoever in putting this legislation forward.

Again, we'd argued the case about some of the deliberate delays which were imposed, which would see—if that equity crowdfunding bill were agreed to—a six-month delay for its operation and which were embedded within that bill. The reason given for that is that ASIC needed time to prepare. For what? The bulk of the changes in that particular bill with respect to equity crowdfunding would help provide a platform for capital raising for a lot of the firms, probably including some of the fin-tech firms, which are interested in getting support for their products. For an alternative fundraising approach, given that the bulk of the arrangements were in place, why would we have a further delay? The reason is that it's called for by ASIC.

We've been arguing as an opposition to shorten the time. We understood that there would be broad agreement between the government and the opposition to do this. Just at the point where there was broad agreement that the new regime could start operating in August, the government pulled the handbrake on it. It has just sat, stagnant, in the Senate, and it's unlikely that it will be agreed to. By the time we come back, it will probably be one year since the champions of the fin-tech sector in the form of the government got their act together to get equity crowdfunding through.

What's happened in the meantime? ASIC's working on another space of regulatory oversight that would affect this sector, in the form of putting a watchdog in place to oversight initial coin offerings. Make no mistake: there are some concerns about whether or not some people who are engaged in this practice as an alternative way of raising capital are doing things that are shonky and whether or not investors would be protected. But ASIC's managed, all of a sudden, to come up with a task force or a watchdog of its own on initial coin offerings, which are being used increasingly to raise capital. Why? It is because some of the existing mechanisms like equity crowdfunding, in their current form, in the absence of the actual reform that the government said it would do, are just sitting there withering away. People can't use equity crowdfunding, because it's too complicated under current arrangements, so they go to initial coin offerings, and ASIC already has a watchdog in place to be able to set this up.

When the government talks about promoting fin-tech, about promoting start-ups and early-stage innovators and about new ways of doing things, it's just that—talk. When the time comes to actually get things done, they're not there; they're not making it happen. It's why we are debating in this final week before the winter break this piece of legislation that has been stalled for absolute months and that will go nowhere. The people who are missing out on this are the small firms that those opposite champion in their oft-repeated mantra of jobs and growth. If you were really pro jobs and growth, you'd make this legislation go through.

It's worth noting that equity crowdfunding reform has been delayed. There are concerns that the under-resourcing of ASIC will not allow for quicker turnarounds on decisions, particularly in terms of some of the stuff that's been argued in this bill. As I indicated a few moments ago, there are some other moves being made by ASIC in terms of the oversight of ICOs that are obviously causing a further strain on resources. From what I understand, the government's already proposed hitting platforms in the equity crowd funding space too, with additional fees to cover the costs of oversight before the changes are even made to the laws to improve the operation of those arrangements. It will be interesting to see whether or not this bill gets moving through the Senate, whether or not the government gets its act together on equity crowdfunding and whether or not it legitimately responds to the concerns of people who are reliant on speedy decisions by ASIC along with proper oversight to ensure that the reputation of the fin-tech sector isn't ruined by bad actors. It'll be interesting to see whether or not all these issues get dealt with.

In the other area that this bill covers off, this bill makes a number of changes in venture capital and angel investor tax arrangements. Some of them are straightforward. But it does prompt the question—we were in this place at the same time three years ago, and the bulk of these changes were being put forward: more beneficial taxation arrangements to encourage greater investment flow to venture capital. We have seen some bigger flows in terms of support for the venture capital sector in Australia. I wouldn't necessarily argue that it's because of these tax arrangements, but I'm not being churlish in arguing against it; the larger reason is because bigger institutional investors, like superannuation funds, have thrown their support behind venture capital.

But there's absolutely no evidence from the government about what's happened on the angel investor taxation arrangements. There is very little evidence from the government that the arrangements they put in place back in July 2015 have actually kicked in. How many people have used them? These are arrangements that were modelled on the UK Seed Enterprise Investment Scheme arrangements, which have been in place in the UK for some time. We have no evidence whatsoever as to how they're actually being used. Admittedly, there will be a lag between financial years and the submission of taxation information to allow that to happen, but, for a government that has never been shy of talking itself up and arguing that its arrangements are working magically, beautifully and seamlessly, it is very odd to notice no information from the government on what's happened on these arrangements. Why?

Obviously the government will completely ignore all these issues in the summing up, as they do on all the matters that are raised. Three years ago, we raised a very deliberate design departure in the angel investor tax arrangements—for example, allowing trusts and companies to access these arrangements, which is quite distinct from the UK arrangements—but none of that stuff has been followed up. The government is moving to prevent what it calls double-dipping and aggressive advice from some tax advisers in this space, but they will ignore the call for evidence. They'll ignore the call for any requirement to stump up and show the benefit of the changes that are made. They will ignore all the valid advice on anything else that is being put forward here and will be reliant on people down the track to clean these things up. It's more likely than not, as is often the case with this government, that they'll propose the changes for the sake of generating the hype, but they will very quickly sidestep any hurdle or any misstep that eventuates as a result of this stuff. Certainly, in terms of some of the arrangements we are discussing here, if the fin-tech sector is arguing for the same changes that consumer advocates are arguing for, then you should sit up and take notice of what is being said. This government certainly won't do anything of the sort.

As I said at the beginning of my remarks to the House, these are the faux friends of fin-tech. They are only there to generate positive publicity within certain elements of what fin-tech are doing. If there's a requirement to follow through with the hard yards of actually making this legislation go through the chamber and operate quicker and if it's about putting forward the resources that will underpin this legislation and ensure their effective operation once they get royal ascent, that will not be there from this government. If it's to address legitimate concerns that are put forward by stakeholders regarding the construction of the legislation, this government will not do that either. They will just go onto the next thing and hope that they can cover up or overlook the problems down the track.

I might add too that there is very little benefit in negotiating with this government on genuine reform to this stuff, because they just talk the talk and they will not walk the walk. They will not do anything that is designed to try to improve this legislation in a bipartisan way. This is just like what we said on equity crowdfunding. The changes they were putting through in March last year were a dud. We urged them not to do it. We said we wouldn't criticise them if they didn't do it and we would give them time to put the proper changes in. They still didn't do the job properly and then had to came back six months later with their tails between their legs, suddenly indicating, 'We've discovered that people want much more liberated arrangements on that platform.' With the Treasurer being the way that he is, there is no point negotiating with him on these things. It is because he is not legitimate in accepting legitimate concerns, advice and alternative approaches in the way that is required to improve these things. As I said, we won't oppose this bill, but we will be making changes to it in the other place to ensure that the legitimate concerns raised by stakeholders—who you wouldn't normally expect to agree with this—will be dealt with in a thorough and proper way. I leave my remarks at that.