There is an argument that the financial services sector is always changing and that fintech is a case of déjà vu. For those of us with some grey hair we have seen important innovations such as credit cards, automated banking machines and, more recently, online banking. But such innovation did not revolutionise financial services, even though they provided huge advances in convenience for customers. The key reason for this was that the established players in the financial services market continued to dominate the market, adapting to the changes, often by buying competitors and/or adopting their technology. However, there is now a strong argument that change is definitely in the air for the financial services industry. Customers, their faith and patience already shaken by the 2008 financial crisis, are demanding more. Given how accustomed we have all become to instant access to goods and services, it may come as no real surprise that we are also demanding the same from our financial services industry which is changing with the emergence of well-funded companies outside the financial space, such as Apple and Google.
The type of change that technology is producing includes adding interesting twists to existing technologies and business models promising lower costs, improved services and wider access. Peer-to-peer lending is one example, so-called “robo-advice” is another. On the other side of the spectrum is new technology that could truly transform the financial services industry with the main example being distributed ledger technology whose best known application is Bitcoin. Though innovative technologies offer opportunities to improve customer service and reduce prices, they also pose significant regulatory challenges with the key ones being consumer protection, market integrity and the rules that guard against money laundering and terrorism financing.
In September 2016, the Australian Securities and Investments Commission (ASIC) published its new corporate plan which noted that two of the five long term challenges it faced were fintech related – digital disruption and cyber resilience and complexity driven by financial innovation. “We continue to see new and established firms explore digital platforms and service offerings in areas such as digital advice, crowd-sourced equity funding, market place lending, payments systems and distributed ledger technologies,” the report said. As part of its action plan to manage the challenges it faces the report stated that ASIC would negotiate and implement bilateral and multilateral agreements and understandings, including fintech related agreements.
Recently, the Hong Kong Securities and Futures Commission (SFC) and ASIC signed a co-operation agreement which provides a framework for cooperation to support and understand financial innovation in each economy. The agreement will enable the SFC and ASIC to refer to innovative fintech businesses to each other for advice and support via ASIC’s Innovation Hub and its Hong Kong equivalent, the SFC’s Fintech Contact Point. This means that Australian fintech businesses wishing to operate in Hong Kong will have a simple pathway for engaging with the SFC, and vice versa. The co-operation agreement also provides for a framework for information sharing between the two regulators. This will help ASIC keep abreast of regulatory and commercial developments in Hong Kong and use this to inform Australia’s regulatory approach. To date, AISC has entered into fintech related referral and information-sharing agreements with the SFC, the Monetary Authority of Singapore, the UK’s Financial Conduct Authority and the Ontario Securities Commission. In addition, information-sharing agreements have been entered with Kenya’s Capital Markets Authority and Indonesia’s Otoritas Jasa Keuangan.
Interestingly, the co-operation agreement was signed after the Asia Securities Industry and Financial Markets Association had issued a paper calling for better coordination among regional regulators and the adoption of a set of best practices for fostering fintech in the region.
“The cooperation agreement is a significant boost for Australia’s burgeoning fintech sector and will ease entry into this important market for innovative Australian businesses,” ASIC Commissioner Cathie Armour said in a statement.