The Select Committee on Financial Technology and Regulatory Technology on Wednesday night handed down its interim report on the state of fintech and regtech in Australia, proposing 32 recommendations to the government on how to ensure a thriving and innovative ecosystem in Australia.
"Australia has a vibrant and growing fintech sector, with a significant number of startups and early stage ventures as well as several established unicorns that clearly show the incredible potential of this sector of the economy," the report [PDF] said. "Fintech has the potential to revolutionise financial services in Australia, increasing competition in the sector and providing better outcomes for consumers."
In his foreword, committee chair, Senator Andrew Bragg, said he hopes this report can be seen as a "series of quick wins". Here they are, starting with the problematic research and development (R&D) tax incentive.
Fixing the R&D tax incentive and backing startups
With a separate review into the R&D tax incentive underway, there have been many calls for further clarity around the eligibility of software creation. The committee has thrown its support behind this request.
"While the committee acknowledges that in February 2019 the government published new software guidance, this does not appear to have addressed the concerns," the report said.
It also recommended the government provide increased certainty around claiming the incentive through issuing guidance. Clear limitations should be placed on the ability for payments to be clawed back retrospectively, it added.
The committee recommended payroll taxes across Australian jurisdictions be simplified, saying it sees value in state governments investigating regtech solutions to provide a single payroll tax platform to simplify compliance processes.
It has also called for changes to early stage investment rules, a vehicle to drive investment in Australian startups, for incentives to be given to business to encourage collaborations with startups, and for the government to lead "startup events".
The committee also wants the government to look at its own startup-blocking red tape in Commonwealth procurement.
Consumer Data Right
Australia's Consumer Data Right (CDR) officially launched on July 1, with the first tranche, an open banking-like regime, requiring financial services providers to share a customers' data when requested by the customer.
The committee recommends the establishment of a new national body to consolidate CDR regulatory responsibilities. This body, or the Australian Competition and Consumer Commission (ACCC) as that is where responsibility currently lies, should also speed up finalising the rules for intermediary and third party access to CDR banking data, the committee said, as it would enable intermediaries to enter the CDR ecosystem as soon as possible.
"Oversight of the CDR is unnecessarily fragmented and regulatory arrangements need to be consolidated … great benefits could be achieved by consolidating national data policy under a single agency," the report said. "Over time, other functions relating to data policy could also be consolidated under this new body."
The committee recommended that the CDR be expanded to include other financial services, starting with the superannuation sector and then including sectors such as general insurance.
It's also asked for the banking industry to work with the government on public education campaigns around the benefits of the CDR.
On the issue of digital data capture or screenscraping, the committee said an outright ban on screenscraping is not prudent at the present time, and that in many cases these practices are enabling companies to innovate and provide competition in the financial services sector.
A need for urgent digital identity
The Digital Transformation Agency (DTA) has been working on Australia's digital identity system, hoping to make the way people access government services simpler and more streamlined.
The system will allow people and businesses to have a single secure way to verify their identity to use government services online, similar to a 100-point identification check, but with the addition of biometric proofing.
It's been testing the system through pilots for a number of years, and the committee has asked the reform be accelerated in order to deliver a national, economy-wide framework for the operation of a federated digital identity ecosystem as soon as possible.
"The committee considers that continuing and accelerating this program of work is of great importance as Australia emerges from the COVID-19 crisis," it wrote. "These reforms will deliver significant time and cost savings to individuals and businesses, as well as creating opportunities for innovative fintechs and others working in the digital identity space."
The committee said any digital identity solutions created under the framework must be opt-in, rather than being mandated, and should be available in addition to the other forms of identity verification currently in use.
Further help with regulatory technology
The committee has asked the government to explore options to promote the use of regtech solutions in assisting small and medium-sized enterprises to comply with their obligations under industrial awards.
"The committee considers that there is enormous potential for regtech products to provide practical benefit to both businesses and employees," it said, adding however that it does not have a clear view at this stage on the best way forward in balancing the interests at stake.
"Further work is required to develop a system in which regtech solutions in this area can be used with confidence by businesses, while ensuring that employees are appropriately protected."
"It is still unclear who is running competition in the financial services sector. Too many issues are falling between the cracks due to the multiple agency approach currently in place. The committee considers that a more holistic focus on competition issues would be helpful, backed up by regular public reporting," it wrote.
To that end, the committee wants the Council of Financial Regulators (CFR) to have a competition mandate and report on competitive dynamics in the Australian financial services market. It also wants the CFR to report on Australia's external competitive position in financial services, including measuring technology adoption and innovation. The ACCC would be required to be further involved with the CFR than it currently is.
It also wants the creation of a "market basis" for determining the success of Australia's financial regulators in supporting a pro-innovation and pro-competition culture in the sector.
"More broadly, however, regulators such as ASIC, APRA and the RBA need clearer measures of accountability when it comes to supporting innovation," it added.
Another recommendation was for government to support self-regulation where innovative products emerge. And separately, the committee wants the government to work with industry to ensure the reskilling of workers affected by economic change.
Where the New Payments Platform (NPP) is concerned, the committee wants NPP Australia to regularly report on the implementation progress of NPP's roadmap in order to drive wider access to the platform.
The need for transparency in the area of foreign exchange fees was also flagged by the committee as self-evident.
With COVID-19 speeding up the adoption of telehealth and e-prescription services in Australia, the committee has asked for Medicare telehealth items introduced during the pandemic to be made a permanent feature of the Australian healthcare system.
Similarly, it has asked that work on implementing e-prescriptions in Australia continue as quickly as possible, and that the Australian government ensure an open and accessible market for e-prescription services.
21st Century directives
The committee takes a handful of issues with the conditions placed on businesses as a result of the Corporations Act 2001. It's asked the Act be amended to allow companies to decide the best format for holding their annual general meetings and other prescribed meetings. This could include virtual, in-person, or hybrid meetings.
It also wants the Act to be amended to enable companies to communicate with shareholders electronically by default.
The Act, and any other relevant legislation and regulations, would also require amending to allow for the electronic signature and execution of legal documents.
"Given that the Treasurer's temporary determination will now be in place until mid-2021, this time should be used to prepare permanent changes to the Corporations Act for implementation."
Blockchain and cryptocurrency
No fintech report would be complete without a mention of the technology behind bitcoin.
Noting the potential of blockchain in the property sector and the developing infrastructure around blockchain, the committee said it sees value in the property sector working with the states and territories to investigate the development of a blockchain based set of government property data.
The committee has also asked the government to release the final Treasury report on Initial Coin Offerings when it is completed.