Australia is equipped to come out of this global recession stronger than most nations. Our comparative health and economic performance puts Australia in the top quartile.
In the June quarter our economy shrank by 7 per cent, this compares to 12 per cent in NZ and 20 per cent in the UK.
Financial technology is a ray of sunshine for Australia.
It creates jobs. It attracts investment. It drives growth.
But we have to work at it to show that Australia is always open for FinTech business.
The 2020 Federal Budget was another step towards achieving that.
Progress on the Interim Report
As Startup Aus knows well, I have spent the past 12 months Chairing the Senate Select Committee on Financial Technology and Regulatory Technology.
We received 200 submissions and tabled an interim report with 32 recommendations in the Senate in September.
Eight of the 32 recommendations were immediately adopted in the 2020-2021 Budget last month.
I commend the Treasurer for his rapid action which builds on the significant work of the Prime Minister and the Assistant Minister for FinTech Senator Jane Hume.
And as the pandemic has shown, adaptability and technology underpin the jobs of today - let alone tomorrow.
By endorsing these recommendations the Treasurer has created an immediate pathway to achieve our goals.
Firstly, $800 million will go towards enabling business to take advantage of digital technologies to grow businesses and create jobs.
This includes important changes to the R&D tax incentive (RDTI) which have been championed by Startup Aus which I have found to be an outstanding industry voice under the leadership of Alex McCauley.
Recommendations on Digital Identity, Consumer Data Right (CDR) and Fringe Benefits Tax (FBT) were also adopted.
Next steps on the Interim Report
The next phase of the inquiry runs until April when we must hand down our final report. Last week we called for further submissions with the release of an issues paper.
In the meantime, I am pursuing the adoption of more of the Interim Report recommendations.
Access to Capital
Access to capital is regularly identified as the major issue facing FinTech and RegTech businesses.
For this reason, the Committee recommended a number of structural changes to investment vehicles to improve fundraising capability.
The whole point is to make our schemes at least as liberal as those available offshore in comparative markets. I want our recommendations to liberalise the ESIC and ESVCLP schemes to be enacted. I also want to see a broader range of investment vehicles as per recommendation 25.
I believe it’s a high priority and I am urging the Treasurer to address it over the next 6 months.
Competition and Innovation
I have also followed up with the executive government to promote a raft of pro-market competition reforms to drive more consumer choice in the face of tired policy settings.
We recommended structural changes with two key recommendations.
Recommendation 13 said a competition mandate should be given to the Council of Financial Regulators “as advice to the government and that the CFR regularly report on competitive dynamics in the Australian financial services market.”
Singapore’s financial regulatory authority (MAS) set up the FinTech & Innovation Group to serve as a primary point of coordination for its initiatives … and it seems to work.
Further, Recommendation 15 argued for a “market basis for determining the success of Australia’s financial regulators in supporting a pro-innovation and pro-competition culture in financial services.”
We need to enact recommendations 13 and 15. We have to drive more competition by ensuring innovation isn’t hacked to death by regulators nor something that falls between the cracks.
During our public hearings there were farcical scenes when both ASIC and the ACCC said they did not drive competition.
I am pleased to report that thanks to the introduction of legislation to enact the Hayne Commission changes, recommendation 16 which is designed to support industry dynamism through self-regulation is on the way.
The new bill introduced last week will help establish a culture of innovation and competition by supporting self-regulation where innovative products emerge while at the same time ensuring strong consumer protection.
Buy Now Pay Later
A perfect example of Australian innovation is Buy Now Pay Later.
It is critically important that innovation like BNPL isn’t hacked to death by random regulatory reviews.
This sort of innovation should be supported by Canberra which dictates policy. It shouldn’t be held to ransom at the mercy of regulators like ASIC.
I want to see ASIC enforce the law, not pontificate on policy.
Certainly, I don’t want to see ASIC inflict damage on the market which risks undermining innovation and choice.
Earlier this week ASIC reported on Buy Now Pay Later, highlighting relatively low late fees. While I think ASIC did a good job to stay in its lane, it barely mentioned the competition benefit of this new industry.
As a regulator it must regulate. It must not stray into policymaking or extensive public commentary.
As ASIC said: “What government wishes to do in terms of future regulation, if any, of the buy now pay later sector is a matter for government”.
If our regulators are not properly coordinated or focussed, we run the risk of sabotaging our own future success.
ASIC has already shown that it can’t even govern its own backyard. We saw a major fail recently when it was exposed for internal remuneration failures.
Let me be clear on this. ASIC has a mandate to give advice to the elected Government which it can provide through the Treasury.
It won’t be allowed to damage innovation in Australia in a hamfisted way.
Nor can we allow it to be a policy maker or create the perception that it is, when its number one duty is to be a law enforcement agency.
ASIC has had a bad month and it needs to get back to basics.
The R&D tax incentive system remains one of the biggest sources of funding for FinTech companies in Australia.
While I believe the R&D changes in the Budget are a great step in the right direction with a $2 billion boost, I would like to see more.
A further recommendation that ensures “genuine software creation by Australian startups is reliably supported” is an area that needs more work.
Ultimately, R&D dollars for young software firms are overwhelmingly spent on hiring new staff to do more R&D - so it’s a high value job creation scheme when it’s directed at these companies.
I have every confidence I will get support from the executive government on my push to get additional guidance on software development.
The Final Report - what’s next?
Once again we are in the ideas harvesting phase. And I want to highlight three things: our competitive position, CDR and “big tech”, and ongoing architecture.
Australia’s competitive position
The new issues paper highlights a number of key areas for further investigation. It was always my intention that phase one scoop up all the outstanding issues into a single plan.
In many ways, the Interim Report is a plan to get Australia up to date. The final report should deliver a plan for Australia to get ahead.
The final report must also be an agenda for Australian FinTech pre-eminence in the Asian region.
That’s why so much of the new issues paper focuses on the external side. It looks at how our standards such as CDR and blockchain connect to international programmes. It also looks at our FinTech bridge with the UK with a view to widening the concept to other jurisdictions.
Surely we want to be connected with growth jurisdictions and the best fintech nations - Israel, the USA and Singapore.
The first test for us is whether we can capitalise upon the recent geopolitical developments in Hong Kong. This will come down to how good our competition position is compared to Singapore and Tokyo.
The Prime Minister Scott Morrison has identified this as a key opportunity and appointed Peter Verwer AO as the head of the global investment and talent attraction taskforce.
To support this process, I have set up a 15 member advisory group, led by former Macquarie banker, Andrew Low, of some of the best business brains in the country to come up with ideas to help Australia capitalise on the demise of Hong Kong as a financial and technology hub.
More could and should be done to increase the tax attractiveness of Australia - to bolster our FinTech market depth.
With so much unsophisticated commentary on China, I want to be clear: Hong Kong will always be an important gateway to China but recent turmoil there means it just doesn’t have the same attraction for many international businesses.
Executives with international business careers will not want to be subject to the national security law which now applies in Hong Kong.
It would be an opportunity lost if we sat idly by and allowed such a lucrative share of the market slip to Singapore.
The issues paper looks at our tax and visa settings. Ultimately a cultural shift will be required throughout our institutions if tax deals and rapid movement of people and capital is to be part of the Australian offering.
The new issues paper also examines obligations on CDR users - particularly with the potential for big non-bank technology companies to become accredited data recipients under the CDR regime.
Consideration must be given to whether the regulatory framework governing the use of financial data can adequately maintain a level playing field if, for example, a large tech multinational such as Google were to become a financial services provider.
This is the first parliamentary inquiry on FinTech.
This model has been responsive to the concerns of industry participants. Policy makers and legislators need to stay close to what is happening in the market to ensure that policy and regulation remains fit for purpose.
I am interested in what type of ongoing regulatory architecture should be in place, following the completion of the committee's work in mid-2021. I want to ensure the voices of market participants and consumers continue to be heard by the government.
There’s no good time to be hit by a crisis.
But Australia is ready to capitalise. We are on track.
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