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What is ASIC’s Enhanced Regulatory Sandbox?

August 15, 2022   Philip Evangelou

The word sandbox originally means an area for children to play and experiment with new things. In the Fintech industry, a regulatory sandbox is known to be a testing space created for new business models that have emerged but are yet to be governed by regulation.

How can ASIC’s Enhanced Regulatory Sandbox  help my new Fintech business?

From September 2020, the Enhanced Regulatory Sandbox will allow individuals and businesses to trial a broader range of innovations in financial services or credit activities for a maximum of 24 months. During the trial period, the sandbox will operate to waive the need for an Australian Financial Services (AFS licence) licence or Australian Credit licence (AC licence). 

The purpose of the regulatory sandbox is to implement certain forms of consumer protection in many of the developing areas of the Fintech industry that have been changing too fast for the law to catch up to.

The previous ASIC Fintech regulatory sandbox will be superseded by the Enhanced Regulatory Sandbox under the Corporations (FinTech Sandbox Australian Financial Services Licence Exemption) Regulations 2020 and the National Consumer Credit Protection (FinTech Sandbox Australian Credit Licence Exemption) Regulations 2020.

What are the requirements to participate?

Applicants are required to be an unlicensed Australian business or a locally registered unlicensed foreign company. Licensed businesses testing new services are not able to apply. To participate, applicants will be evaluated based on two tests: the Net public benefit test and the Innovation test. 

Net public benefit test: The applicant must provide an explanation of the potential benefits that their financial service or credit activity will bring to the public if it participates in the Enhanced Regulatory Sandbox.

Innovation test: The applicat must explain why their financial service or credit activity is a new innovation or improvement on an existing service.

The Enhanced Regulatory Sandbox can only be used once to test a particular financial service or credit activity. A business can, however, use it multiple times so long as they are testing different financial services

Does it cover all financial products?

The types of financial products covered by the Enhanced Regulatory Sandbox varies for wholesale clients and retail clients. 

For wholesale clients, the Enhanced Regulatory Sandbox covers financial services that deals, advises on or issues financial products with the exception of any of its derivatives such as margin lending products.

For retail clients, the acceptable financial services include:

  • Deposit products (ADI issued)
  • Non-cash payment products (ADI issued)
  • General insurance (excluding consumer credit insurance)
  • Life insurance
  • Superannuation products
  • Interests in simple managed investment schemes
  • Commonwealth debentures, stocks and bonds
  • Securities (shares and bonds) listed on the official list of a prescribed financial market or an approved foreign market
  • Crowd-sourced equity securities
  • Issuing credit, or providing credit advice or intermediary services
  • Issuing general or life insurance as an agent of the insurer
  • Issuing a non-cash payment facility
  • Providing a crowd-funding service

Additionally, there is a $10,000 individual limit on the value of the financial services that can be provided to retail clients. A $5 million aggregate exposure limit applies to all financial services and credit activities offered to all clients in a business.

How can I apply?

Applicants will be required to notify ASIC through the appropriate form listed below:

ASIC will evaluate the application form and ensure that the criterias have in fact been satisfied. From the day of notification, ASIC will have 30 calendar days to respond if they find that a business is not entitled to rely on the Enhanced Regulatory Sandbox because of poor conduct, failure to meet conditions or previous misconduct. If ASIC does not respond within the 30 calendar days, the Enhance Regulatory Sandbox exemption will be enlivened starting from the 31st day since lodging the notification with ASIC.

When do I need to obtain my AFS licence or AC licence?

The Enhanced Regulatory Sandbox exemption will end after 24 months. The 24 months period cannot be paused, extended or restarted. It is important for businesses to start applying for an AFS licence or AC licence well before the period terminates. The recommended time to apply for a licence is a minimum of 6-9 months before the end date according to ASIC. 

About Philip Evangelou

phillipPhil is a director at OpenLegal. He has over 16 years experience working in private practice and in-house counsel in Sydney and London, giving him expertise in employment law, IP, finance, leases, dispute resolution, insurance and contracts.