House of Representatives

Second Reading Speech

Mr SUKKAR (Deakin - Assistant Treasurer and Minister for Housing)

I move:

That this bill be now read a second time.

The government is committed to supporting the Australian innovation ecosystem by providing a tax and regulatory environment that will help innovation in Australian businesses and help them raise capital, grow and succeed; and of course get more Australians into more and better-paying jobs.

This government, the Morrison government, is the government of innovation, jobs and business creation. We want to see new businesses and new enterprises get off the ground and get going.

As promised, we are putting in place the world's most forward-leaning regulatory sandbox for fintech development.

The Morrison government sees an active fintech sector as a critical driver of more competition in financial services. We want to see competition, because it will increase the pressure on financial providers - both traditional and emerging - to be more responsive to consumers' needs and deliver better outcomes for Australians.

The government is a strong believer that choice empowers consumers to seek the financial services that best suit their needs without being tied to businesses that don't listen to them.

The enhanced regulatory sandbox will allow firms to test new products and services without needing to obtain a financial services licence or a credit licence from ASIC first. It will therefore allow for trial and error in a controlled environment, giving firms a chance to confirm their concept through initial testing with their clients.

In simple terms, this will help Australians and Australian businesses to access cheaper financing and better financial products so that they can grow and invest. The productivity benefits that will flow from this will be huge. Most investment of course equals more jobs and better wages.

Those in business know the importance of meeting customer needs. The regulatory sandbox will provide a means to test market demand. It will give firms looking to do things differently - to do things better for consumers - a real leg up and clear air to get going. It will reduce the time it takes to make their products and services available to consumers and it will mean entrepreneurs are more informed in making decisions on their offering before applying for a licence.

We have worked hard to develop a legislative regulatory sandbox which builds on ASIC's existing licence exemption. But we have also been mindful of ensuring the firms in the regulatory sandbox maintain protections for retail consumers.

The government's enhanced sandbox is about helping fintech businesses overcome the initial regulatory burden and costs of licensing that may otherwise hinder some of their innovative offerings.

Schedule 1 to this bill takes the first step. It extends the regulation-making powers in the Corporations Act, establishing the foundation for the government's new framework.

The regulations will then set out the detail regarding eligibility criteria, the types of products and services that can be tested, and the conditions that will need to be met during testing.

Prescribing the detail in regulations will mean timely adjustments can be made in response to the evolving market. This will ensure the regulatory sandbox stays fit for purpose in this rapidly moving sector. This approach, which combines legislative authority and flexibility, sets Australia apart from its international peers.

The draft regulations were released for public consultation between late October and December 2017. The government will consider those responses as we work to finalise the final design of the regulations.

Under the proposal released for consultation, businesses will be able to test a wider range of new and innovative fintech products and services. This includes holistic financial advice, the issuing of consumer credit contracts and facilitating crowdsourced funding.

To ensure that the sandbox is operating effectively and is fit for purpose, the legislation provides for an independent review to be undertaken 12 months after the enabling regulations have commenced.

As I've mentioned, while businesses will be able to operate without a licence, they will still be required to meet key consumer protection requirements including responsible lending obligations, best interests duty, and to have adequate compensation and dispute resolution arrangements.

The government believe the regulatory sandbox will provide significant improvements. It will support small business, and it could revolutionise many aspects of the financial services sector - right across the spectrum of innovation, including payments, insurance, credit, data and analytics and personal finance management.

Consumers are already benefiting from the emergence of fintech firms. These nimble and consumer focused firms are putting pressure on traditional financial services providers to be more responsive and to deliver better outcomes for Australians.

The government and I would like to thank the fintech industry for their work with the government to help develop the regulatory sandbox and other initiatives we have progressed in the last three years.

The regulatory sandbox will no doubt be a source of many breakthrough innovations in fintech in the coming years.

Schedule 2 to this bill makes a number of minor complementary technical amendments to the Early Stage Venture Capital Limited Partnership, Venture Capital Limited Partnership and tax incentives for early stage investor regimes to clarify the income tax law and ensure that these provisions operate within the original policy intent.

The tax incentives for early stage investors measure and the new arrangements for venture capital limited partnerships measure were introduced as part of the National Innovation and Science Agenda. Together, these measures are designed to promote an innovative, risk-taking and entrepreneurial culture by providing incentives for investors to invest in Australian innovative, high-growth potential start-ups and venture capital.

The amendments being made by this bill will ensure that investors in innovative Australian businesses continue to benefit from effective, generous government support and have certainty as to how these programs are intended to operate.

Full details of the measure are contained in the explanatory memorandum.

Debate adjourned.