Senate Select Committee on Financial Technology and Regulatory Technology Tabling Speech– Interim Report
I am very pleased to be chairing this inquiry, which is about facilitating increased competition and innovation in Australia's financial sector and beyond.
While Australia officially slips into the first recession in 30 years, it is clear that we need more jobs. But we must embrace technology to be globally competitive. There is no other way.
The committee was established in September last year, and following an extensive round of public submissions and hearings in January and February, the committee was due to table this interim report in March this year.
However, COVID-19 intervened, and the committee decided to reopen submissions and take further evidence at hearings in the middle part of the year before finalising this report.
In total, the inquiry has now received more than 200 written submissions from a broad range of stakeholders and held ten public hearings. Following this substantial interim report, the committee will consider further matters relevant to its terms of reference and present a final report in April 2021.
Put simply, the inquiry is about more jobs and more choice - that is the dividend of these sectors growing.
Technology should not be feared. The computer age has delivered enormous growth in jobs. Technology is a job creator - not a job killer.
FinTech (Financial Technology) is commonly defined as organisations combining innovative business models and technology to enable, enhance and disrupt financial services.
Australia has a vibrant and growing FinTech sector, with a significant number of startups and scaleups as well as several established unicorns that clearly show the incredible potential of this sector of the economy.
RegTech (Regulatory Technology) is the use of new technology to undertake regulatory monitoring, reporting and compliance functions.
To review and organise the material presented to the committee through the inquiry thus far, the committee has chosen to view it through 5 buckets: tax, regulation, access to capital, skills and talent, and culture.
The committee also received specific evidence relating to the impact of COVID-19 and technology enablers that have risen to prominence during the crisis.
The committee has made 32 recommendations across all of these areas.
COVID-19 Challenges and Digital Transformation
It is clear from evidence received by the committee that COVID-19 has had a material impact on FinTechs, and the tech sector more broadly.
But as the pandemic has shown, adaptability and technology underpin the jobs of today- let alone tomorrow.
While some businesses, particularly well-established FinTechs and those in specific niches, have ‘ridden the wave’ and experienced significant growth over this period, many newer companies have struggled, with loss of capital in flows and faltering customer acquisition.
The sector has received significant support from a number of government initiatives, including JobKeeper as well as programs to support non-bank lending.
The committee has made several recommendations in relation to these technology enablers, including: allow electronic company meetings and communications; allowing for electronic signing and witnessing of legal documents; continuing the roll out of telehealth services on a permanent basis; and the utilisation of electronic prescriptions.
The committee also identified accelerating progress on the Australian Government’s digital identity reforms as a key opportunity, as well as the potential for RegTech to be used to facilitate compliance with industrial awards.
On tax issues, the committee heard that a competitive tax framework will assist FinTechs and RegTechs to reach their potential and maximise the impact of the sector in Australia’s future growth.
The operation of the Research and Development Tax Incentive (R&DTI) was raised by a number of industry participants, due to uncertainty around the eligibility of software development for the program, and concern about retrospective audits which can result in companies having to pay back the incentive.
The committee has made recommendations for additional clarity in these areas, while noting that further legislative changes to the RDTI are currently under consideration by the Economics Legislation Committee.
The report also calls on the Council for Federal Financial Relations to simplify payroll tax across jurisdictions in Australia.
Looking at the way competition in financial services is regulated in Australia, it is abundantly clear that the current approach is fragmented and unclear, with the ACCC, ASIC,APRA and the RBA all playing roles.
Witnesses viewed this fragmentation as a risk, and saw the need for Australia's financial regulators to collectively provide greater focus on promoting competition and innovation in the financial system, if Australia is to stand any chance of competing with the likes of Singapore and the UK.
The committee’s recommendations in this area are:
• Providing the Council of Financial Regulators with a competition mandate, and ensuring that it regularly reports on competitive dynamics in the Australian financial services market and provides advice on these issues to government; and
• Requiring the Council of Financial Regulators to consider and report on Australia’s external competitive position in financial services.
The committee also supports self-regulation where innovative products emerge, whilst ensuring strong consumer protection. We have used the example of Buy Now Pay Later products as a positive, innovative development which should be supported by a system of “co-regulation”.
We were not convinced that the way to promote innovation was to force new ideas into old forms of regulation and laws designed for something altogether different.
An important regulatory reform that is underway to encourage greater competition and provide consumers with more power is the Consumer Data Right (CDR). The committee considers that a single, standalone body is required to manage this program, particularly as it is rolled out to further sectors in the economy. The CDR is too important to be managed by a wing in the ACCC.
Access to Capital
Turning to the issue of access to capital, evidence received by the committee highlighted the critical role that capital flows play in fostering the growth of innovative businesses in Australia, including FinTechs and RegTechs.
The committee has made recommendations to strengthen the operation of the Early Stage Venture Capital Limited Partnerships program and the Early Stage Innovation Company tax incentive.
The committee heard that these programs require tweaking in order to reach their full potential and attract additional capital into startups.
The committee has also recommended the creation of further Collective Investment Vehicles, are form to enhance Australia’s global attractiveness as an investment destination.
These reforms are well overdue, having initially been recommended by the Johnson review in2009.
If we have a serious prospect of beating Singapore in winning business from the ailing Hong Kong, we must enact these reforms to attract capital.
Skills, Talent and Culture
On issues relating to skills, talent and culture, the committee has made recommendations across several areas.
The committee has recommended the Government work with industry to ensure re-skilling of workers affected by economic change, and ensure the availability and accessibility of microcredentials for those seeking to join the FinTech and RegTech industries.
It should also explore the option of including eligible outplacement training under the Fringe Benefit Tax exemption provision for eligible startups.
The committee is also calling for the government to examine options for enabling startups to compete in government procurement processes, as well as the introduction of government-led, challenge-based innovation initiatives to enable X-tech firms to solve policy and service delivery challenges.
The package of recommendations brings together many loose ends and turns them into a package.
The committee will continue to engage with the sector as it moves into the next phase of this inquiry.
Just like our FinTechs, we (Government) must be iterative and responsive as we undertake our work.
A positive disposition to technology is one thing.
The next is to have a plan for Australia to be competitive.
The plan to be competitive in FinTech is the same plan for Australia to be competitive in technology and across the economy.
The fundamental need to be competitive is the same as it was before the pandemic. The need for reform is now more acute because we are in a recession and competing globally for new investment.
We have the brains. We have the skills. All we need to do is unlock our technology prowess by breaking down some old-fashioned barriers.
I wish to thank the other members on the committee for their interest, engagement and collegiate approach to the operation of the committee, and note that the vast majority of recommendations in this report were agreed to with bipartisan support.
I particularly wish to thank the Deputy Chair and fellow millennial, Senator Marielle Smith, and Committee members Senator Paul Scarr, Senator Susan McDonald and Senator Jess Walsh for their support in the compilation of this report.
It would be remiss of me not to personally thank Committee Secretary, Lyn Beverley, for her commitment and guidance over the past year.
And finally, I want to acknowledge the father of Fintech in Australia - the Prime Minister Scott Morrison, who has been a champion for FinTech since his days as Treasurer when he set the ball rolling on Australian FinTech. He established the Consumer Data Right, opened the Fintech Bridge with the UK and led the reforms on early stage innovation companies.
The government is full of FinTech supporters - the Treasurer Josh Frydenberg and Australia’s first Financial Technology Minister, Jane Hume. They are a great team and I am proud to serve alongside them. I hope these recommendations will be adopted by the executive government.
I look forward to presenting the committee’s final report in April 2021.