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senate vote 2020-02-10#8
Edited by
mackay staff
on
2020-02-21 10:58:17
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Title
Bills — Treasury Laws Amendment (2018 Measures No. 2) Bill 2019; in Committee- Treasury Laws Amendment (2018 Measures No. 2) Bill 2019 - in Committee - Limit the exemption
Description
<p class="speaker">Jenny McAllister</p><p>I have some general questions for the minister. We've also circulated an amendment in the chamber and I'll come to that later, depending on whether other senators have questions. Minister, a version of the sandbox has been in place for some time through other means. As I understand it, there are only three entities using the sandbox and 15 in the pipeline. It's been unfavourably compared to the UK, where they've had 146 applications; Singapore, with 30 applications; and Malaysia, with seven applications in the first six months. Hong Kong had nine entities using their sandbox for 11 trials. I am working on the assumption that, in part, the rationale for the approach proposed in the legislation is that the government doesn't think that the present rate of utilisation of the sandbox is acceptable. I want to understand what the government would consider success. In 12 months time what should we expect from the changes that are being proposed this evening?</p> <p class="speaker">Jane Hume</p>- The majority voted against [amendments](https://www.openaustralia.org.au/senate/?gid=2020-02-10.233.1) moved by NSW Senator [Jenny McAllister](https://theyvoteforyou.org.au/people/senate/nsw/jenny_mcallister), which means they failed.
- ### What were the amendments?
- Senator McAllister explains that:
- > *The legislation provides exemptions for certain firms from some regulatory obligations. As I argued earlier, we think that these exemptions should only be available to firms that have products and services that are genuinely innovative and will benefit customers. It's the second part of the test that seems to me to be quite important, given the very large number of examples that we have available to us of innovation that in fact is not good for customers and is only good for businesses by virtue of exploiting customers. The amendment that's been circulated sets out a basic test that ASIC would apply. It would empower ASIC to prevent products and services that don't meet the innovation-and-benefit test from accessing the exemption.*
- ### What does the bill do?
- According to the [bills digest](https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/bd/bd1920a/20bd016):
- > *The [Treasury Laws Amendment (2018 Measures No. 2) Bill 2019](https://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id:legislation/billhome/r6341) comprises two Schedules which have different purposes:*
- >
- > * *Schedule 1 amends the Corporations Act 2001 and the National Consumer Credit Protection Act 2009 (NCCP Act) to allow conditions to be imposed on providers of financial and credit products who utilise the Australian Securities and Investments Commission’s (ASIC) existing regulatory sandbox arrangements to test new, innovative ‘Fintech’ products in the Australian market and*
- > * *Schedule 2 makes minor amendments to the Income Tax Assessment Act 1997 (ITAA97) and the Income Tax Assessment Act 1936 (ITAA36) to ensure that the venture capital and early stage tax concessions in the ITAA97 and ITAA36 operate as intended.*
<p>Thank you, Senator McAllister. Yes, you're right, the sandbox has been around since 2016 and it has been underutilised. Seven eligible businesses have been able to make use of ASIC's regulatory sandbox since September 2016. Even more have, in fact, approached ASIC, but many have been unable to make use of the existing licensing exemptions. That's why, of course, the government is moving this bill, which will allow for the making of regulations that broaden the scope of eligibility.</p><p>The feedback that we had from participants was that it was too restrictive. I think Senator Ciccone said that we want to see fintechs get ahead of the pack, but the problem is that without the bill, unamended, getting ahead of the pack is very difficult. It's like doing it with one hand tied behind your back. It's hard to say exactly how many firms we would want to see use the sandbox, but we want to make it flexible enough that it helps a vibrant industry grow and flourish. I don't think it would be unreasonable to expect the same take-up of the sandbox as they saw in the UK and, potentially, Singapore.</p> <p class="speaker">Jenny McAllister</p><p>Is the minister aware of any firms that are waiting, ready to go and interested in utilising the sandbox? If you are able to talk about those firms, what are their characteristics and the kinds of regulatory intervention that they'll require? An example or two of that kind would be helpful.</p> <p class="speaker">Jane Hume</p><p>Without naming the firms themselves, one of the points of the regulatory sandbox changes that we're proposing is that it expands the number and the type of products that can use the sandbox. For instance, deposit products and payment products—if ADI-issued—general insurance, liquid investments and consumer credit contents with certain features were available in the old ASIC sandbox. In the enhanced ASIC sandbox you'll certainly find those deposit products, and you would also find non-cash payment products that are ADI-issued; general insurance products, although excluding consumer credit insurance; life insurance; superannuation products; interest in simple managed investment schemes; Commonwealth debentures; stocks and bonds; listed securities, including shares and bonds; and also crowd-sourced equity securities. That said, not all products will be available to be used in the sandbox; certainly not things that involve derivatives, marginal lending products and credit contracts. Payday lenders won't be involved either.</p> <p class="speaker">Jenny McAllister</p><p>Minister, you listed a range of product types. The legislation before us provides for regulation-making to enable, I assume, product types to be brought into the sandbox. Can you advise how you see those regulations being structured. Would they be structured around the kind of list that you just provided?</p> <p class="speaker">Jane Hume</p><p>You have a copy of the draft regulations that have been proposed, so you would see that those products are the ones that have been mentioned. The aim of the game here is to make it as flexible as possible in a very fast-moving and innovative environment.</p> <p class="speaker">Peter Whish-Wilson</p><p>Minister, my understanding is that what we're dealing with here is making it easier for companies who want to use a sandbox to raise finance—correct? This is about raising money for these companies, making it easier for them?</p> <p class="speaker">Jane Hume</p><p>No, it's about allowing businesses to test their business model in a safe and monitored environment.</p> <p class="speaker">Peter Whish-Wilson</p><p>So, Minister, it doesn't change restrictions on brokers or financial planners or others recommending people invest in these companies in the sandbox? Can you just clarify that?</p> <p class="speaker">Jane Hume</p><p>No, it does not. In fact, the consumer protections that will remain in place include: disclosure requirements, best interest duties for financial advisers, responsible lending obligations, internal and external dispute resolution mechanisms, and adequate compensation arrangements. Before providing services, businesses need to notify clients that they're operating without a licence or authorisation from ASIC and those normal protections will apply.</p> <p class="speaker">Peter Whish-Wilson</p><p>So what's the change, Minister? At the moment you need a licence to be able to recommend investing in these companies, but you won't need one following this regulation? Can you just clarify that?</p> <p class="speaker">Jane Hume</p><p>No, that's nothing to do with it, Senator. I think you've missed the point of the sandbox itself. It's simply to test new business models.</p> <p class="speaker">Peter Whish-Wilson</p><p>It has been put to me that that is the case. I'm asking you to clarify that.</p> <p class="speaker">Jenny McAllister</p><p>Nonetheless, Minister, the list that you provided then is not exhaustive. The regulation-making powers are quite broad, so other categories of product could be brought into the sandbox?</p> <p class="speaker">Jane Hume</p><p>Yes, you're right. That's why we're keeping it in regulation, so it can be flexible, so it can be changed, because, as I said, it is a very fast-moving space. And even since we originally put this legislation together a couple of years ago, times have moved on. One of the things that came up in the Senate committee when we originally had this legislation was the need for a review. I think that was an amendment suggested by Labor. That's something the government has taken on in order to make sure there is an appropriate monitoring of the bill as it stands.</p> <p class="speaker">Jenny McAllister</p><p>You'll have observed that in many of the submissions made on the bill and in many of the contributions in the chamber, there is an understandable anxiety about any proposition that loosens regulatory requirements. It's not as though we've had a particularly good experience with the finance sector in recent years, and the capacity for exploitation has become really obvious. And that's not just in the banking sector; that's also in insurance, in non-bank lending and in a range of other product categories. I assume that, in addition to advice from ASIC, you've received advice from Treasury. What advice have you received about the risks that are attendant upon a sandbox approach? How do you seek to have those managed?</p> <p class="speaker">Jane Hume</p><p>You're right, Senator McAllister, it is about finding the right balance between allowing innovation to flourish and at the same time putting in the appropriate consumer protections. To reduce the risk of consumer harm during unlicensed testing, businesses will need to comply with certain disclosure and consumer protection requirements. As I mentioned earlier, before providing the services, businesses will need to notify clients that they're operating without a licence or authorisation from ASIC. Of course the normal protections will apply that I mentioned before—disclosure requirements, best interests duties for advisers, responsible lending, internal and external dispute resolutions, and adequate compensation.</p><p>In addition, many of the underlying products that are offered through the regulatory sandbox will still be backed by a licensed business. For example, businesses can only provide financial advice to retail clients in relation to superannuation products in a regulated superannuation fund. In addition to that, there will be further safeguards that will be in place to limit the financial exposure for retail clients. Businesses will only be able to offer specified products and services to retail clients, and will generally only be able to invest up to specified exposure limits. This recognises that retail clients are less able to withstand financial setbacks. ASIC, of course, can take action if businesses aren't meeting those requirements, and the regulations are, of course, still disallowable.</p> <p class="speaker">Jenny McAllister</p><p>In the course of their submission, one of the civil society groups made the point that the product intervention power represents a possible avenue of intervention for ASIC should one of these products be performing in a way that was not expected at the time it was admitted into the sandbox. Do you consider that the PIP would be a component of the safeguards, or are there adequate safeguards built into the regime in terms of the capacity for ASIC to intervene should a product not be functioning as anticipated?</p> <p class="speaker">Jane Hume</p><p>I think the PIP is a corollary to the ASIC sandbox, but it isn't necessarily an integral part of the sandbox, and those consumer protections and safeguards that I have already mentioned would form the framework for consumer protections within this particular bill.</p> <p class="speaker">Jenny McAllister</p><p>Just for clarity: the EM sets out how schedule 1 allows for an exemption to be withdrawn should the product not be meeting certain conditions set at the outset. Can you explain the other circumstances where an unanticipated harm emerges in relation to a particular product or category of products, and the capacity for ASIC to deal with that problem?</p> <p class="speaker">Jane Hume</p><p>The bill does give ASIC the power to revoke a firm's ability to use the sandbox, and we expect that this power will allow ASIC either to provide notification to a business that they can no longer rely on the exemption or to apply to the Federal Court for an order that the business comply with a particular requirement where a business fails to meet the requirements or ASIC considers they haven't acted fairly, honestly or efficiently. So breaches of some of the requirements will mean that a provider automatically ceases to be exempt from the licensing exemption, and these include requirements related to eligible activities, investment thresholds and consumer notifications. Of course, that product intervention power and the design and distribution obligations that are currently before the parliament will also apply to these enhanced sandbox activities as a corollary.</p> <p class="speaker">Jacqui Lambie</p><p>I have worked very collaboratively with the minister, and I thank her for that. It has not been a problem, but we did have a few minor issues. I'd just like to make it quite clear that ASIC confirm that they will publish the following data on the ASIC website: the names of the businesses currently in the sandbox, the cumulative total of businesses admitted to the sandbox, the number of businesses disallowed from entering the sandbox during their 30-day waiting period, the number of businesses removed from the sandbox due to misconduct, and the number of businesses in the sandbox issued with a compliance order. ASIC also confirms that the numerical data listed will be published on a quarterly basis. I seek leave to table a document.</p><p>Leave granted.</p><p>I table the document.</p> <p class="speaker">Jane Hume</p><p>Yes, that's all good. I think we know where we stand on that one. Thanks, Senator Lambie. ASIC have obviously agreed to all of that.</p> <p class="speaker">Jenny McAllister</p><p>The EM indicates that any regulations or subordinate legislation made under this legislation would specifically provide for AAT review for ASIC decisions relating to exemptions from the ACL requirements. It's at the top of page 10 in the explanatory memorandum. I'm interested in understanding how the public can be assured that what is essentially a political commitment being made in the EM will continue to be a feature of the regime as implemented.</p> <p class="speaker">Jane Hume</p><p>My understanding is that it's standard for administrative decisions to be appealed to the AAT.</p> <p class="speaker">Jenny McAllister</p><p>The EM reads:</p><p class="italic">Under paragraph 327(1)(i) of the Credit Act, decisions made by ASIC are only subject to AAT review if the regulations specifically provide for this. As such, to ensure consistency across the application of the Corporations and Credit Acts to the regulatory sandbox, the Government intents that the regulations would specifically provide for AAT review for ASIC decisions relating to exemptions from the ACL requirements.</p><p>That appears to set out a legal reason why it needs to be specified in the regs. My question to you is: how can we be assured that this, which is a statement of government intent, will actually be a feature of the regime as implemented?</p> <p class="speaker">Jane Hume</p><p>My understanding is that it can't start until the regs have been allowed. The regs have been available to you for six months and they actually are in the regulations—I think that is a feature of the regulations.</p> <p class="speaker">Jenny McAllister</p><p>Yes, I understand that, but, as we explored earlier, the draft regulations that you've provided are not complete. The legislation provides for other regulations to be drafted at some subsequent point. My question is: how is this feature, described in the EM as being important for maintaining consistency across the application of the corporations and credit acts, to be assured?</p> <p class="speaker">Jane Hume</p><p>My understanding is that this is standard practice and that the regulations do allow for this. Obviously, it will take 15 days to get the regulations in place once the bill is passed.</p> <p class='motion-notice motion-notice-truncated'>Long debate text truncated.</p>
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