Consumer credit activities, such as providing loans, credit cards, consumer leases, overdrafts and line of credit accounts, are heavily regulated by ASIC under the National Credit Code. If your Fintech is undertaking these activities or other credit activities, you’ll most likely need an Australian Credit Licence (ACL) and need to comply with the NCC. The NCC covers licensing requirements, responsible lending and comparison rates for credit lenders.
National Credit Code Licensing requirements
Fintechs undertaking credit activities, like providing loans to consumers, are required to have an ACL. However, there are certain activities that do not require an ACL. For instance, Afterpay, a buy now pay later service, does not require an ACL as it does not charge consumers for its service, it does not charge interest and the credit term is short. If you do need an ACL, you may be able to apply for a 12-month exemption as a startup FinTech. For details, read our article ‘Do you need a credit licence from ASIC to operate a FinTech?’
As an Australian Credit Licensee, your FinTech needs to comply on an ongoing basis with general obligations of acting fairly, honestly, efficiently and competently. These general obligations include:
- Complying with the conditions of your licence and relevant laws
- Having appropriate dispute resolution procedures in place and being a member of the Australian Financial Complaints Authority (AFCA)
- Having appropriate compensation arrangements in place
- Having adequate resources – technology, employees, finance – to operate competently and efficiently
- Having a risk management plan – including arrangements so that your clients are not disadvantaged by any conflicts of interest potentially arising from the credit activities of your FinTech
The central principle of responsible lending is that licensees must not enter into, recommend or assist a consumer in entering into a credit contract which is unsuitable for the consumer. Determining whether a credit contract is unsuitable involves reasonable inquiries into the consumer’s objectives and financial situation to develop a preliminary assessment of the suitability of a credit contract.
The NCC requires licensees to provide a comparison rate when advertising fixed-term credit (mainly for personal domestic purposes). This comparison rate includes the fees and charges in addition to the interest rate of a loan to assist consumers in comparing options.
Tips for compliance
Here are some key tips for ensuring your FinTech complies with the NCC.
- Have compliance checklists set up for all of your obligations, including each requirement, when it needs to be completed and who is responsible.
- Keep your files up to date! You’ll want organised and thorough records of financial activities, financial position, dispute resolution and compensation activities, and staff training. These files will help with the completion of your annual compliance certificate.
- Trained and competent staff: Regularly and adequately train your staff. Consider induction programs and regular training sessions. Have practical checklists and instructions in place for staff compliance.
- Monitoring compliance: Regularly monitor your staff’s work, have reporting systems set up, have thorough records of compliance meeting minutes, audit reports and reviews.
- Don’t be complacent! Review your compliance arrangements every 6-12 months or more frequently as required. Appoint someone to review situations of non-compliance and develop solutions.
This summary is not exhaustive, and your compliance strategy will need to be tailored to your FinTech according to the nature, size and complexity of the business.
If you need assistance with your NCC compliance, get in touch with us via the contact form or by calling 1300 337 997.