FinTech (Financial Technology) – P2P lending, Digital Currency, Crowdfunding, Robo-Advising, Robo-Investing
‘Crowdfunding’ covers a broad range of fundraising activities including providing free or discounted products or services to funders who pledge a relatively small amount of funds to the project and equity crowd funding that will result in shares in the new business entity being issued to investors (i.e. crowd-sourced (equity) funding or ‘CSF’). Crowdfunding is typically utilised by start-ups and projects to gain funding for relatively untested businesses and inventions where traditional bank financing or market listing would be either too difficult to attain or too expensive for the fundraiser’s needs. We can help you establish a crowd-sourced funding intermediary and apply for the relevant licence with ASIC, or advise your business in relation to seeking crowd-sourced funding through an established crowd-sourced funding intermediary and review your proposed crowd-sourced funding offer document.
Experts in FinTech (Financial Technology) law
Holley Nethercote works with a range of businesses taking advantage of new technology to provide innovative, disruptive product offerings in the financial services industry. We can help you establish where you fit within the regulatory network and deal with the relevant regulators. You may need to apply for an AFSL, apply for an ACL, or enrol with AUSTRAC, or get relief from existing regulation. We can also assist with the commercial needs of a start-up, from employment contracts to leases and terms and conditions.
We also jointly convene a FinTech Forum with Pitcher Partners. The Forum runs quarterly and is a great way to meet other entrepreneurs and keep up-to-date with the legal and regulatory challenges affecting developing businesses. Follow us on Twitter to find out when our next session runs – you can even attend by live video-streaming smartphone application Periscope if you are based interstate.
Peer to Peer (P2P) lending
P2P covers a range of businesses servicing retail and wholesale clients with a wide range of credit solutions and investment options. A P2P lender must consider their obligations under both financial services and credit legislation and may need to hold both an AFSL and ACL. Such businesses usually need to comply with the AML/CTF regulations as well.
Digital Currencies, Cryptocurrencies and Bitcoin
The law surrounding digital currencies is complex and rapidly evolving. Regulatory authorities in Australia, including AUSTRAC, ASIC and the ATO, are still evolving their policy on digital currencies, and international regulation is heading down different paths. We keep on top of the regulatory changes so we can provide you with current advice on how your business can navigate the legal landscape. One of our lawyers, Paul Derham, is chair of the ADCA's AML and Financial Crimes Committee.
Robo-investing and Robo-advising
Attracting a lot of press recently, robo-businesses use sophisticated algorithms and web-based technology to deliver a personal or general advice service (in the case of robo-advising) or execution-only or general advice services (in the case of robo-investing). By removing traditional advisers from the transaction, consumers can access products at a much lower cost, but regulators are vigilant to ensure that the technology does not deliver poorer investor outcomes.
Robo-advice – a definition
Providing financial services via technology has been branded as Robo-advice or digital advice. ASIC defined digital advice, in Report 448, as the “provision of automated financial product advice to consumers”.
This advice can be either completely automated (i.e. with no human involvement) or partially automated advice (i.e. with some human involvement). It can also follow a personal advice model or a general advice model. Robo-advice can range from the provision of financial calculators to very complex and sophisticated tools which collect data and the recommend an asset allocation or strategy to meet objectives. Here is a (dated) diagram showing where various US companies sit in this matrix.
Website: Orion Advisor
The benefits of providing financial advice by way of technology is that it can improve consumer access generally to advice and is likely to appeal to younger and tech savvy investors. It may also be used to complement, rather than replace the traditional advice model. However, for financial service providers who are considering diving into the FinTech world care must be taken to ensure that the quality of advice provided is not compromised and that legal requirements (including the Best Interest obligations) are complied with if giving traditional personal financial product advice.
Currently, there is no specific regulatory framework to deal with robo-advice and therefore these advisers must fit into the existing regime. Earlier this year ASIC established a robo-advice taskforce which is an internal team dedicated to examining issues and monitoring businesses in this sector. The robo-advice taskforce is currently examining a number of issues, such as the adequacy of compensation arrangements and the interaction between scaled advice and the best interests’ duty.
We act for a significant portion of the Australian robo-advice industry and welcome questions about entering into this market or offering robo-advisory services. We can help you prepare the legal documents to secure the licences you will require to operate, as well as refine your offering to ensure you’re operating within the latest guidance to the industry.
If you wish to find our more, please contact our financial services team.
Monday, 15 January 2018
Australian Fintech businesses would be aware of ASIC's existing Fintech Regulatory Sandbox. In this blog, we refer to this as the “Existing Sandbox” - see a previous blog we wrote defining ASIC's Existing Sandbox. The Existing Sandbox was designed for certain Fintech startup businesses to avoid AFS licensing requirements for one year subject to retail client caps, notification requirements and client exposure limits.
Wednesday, 22 November 2017
The recent changes to the law in Australia align the GST treatment of digital currency with the GST treatment of money (particularly foreign currency). However, it will be important for purchasers and users to ensure that the particular tokens they are using come within the definition of “digital currency” in the GST legislation.
Monday, 17 July 2017
The Corporations Amendment (Crowd-sourced Funding) Act 2017 (‘the Act’) received royal assent on 28 March 2017 and will take effect on 28 September 2017. The Act has established a regulatory framework for crowd-sourced funding (‘CSF’), allowing public companies to raise up to $5 million a year from a large number of individual investors through an online platform.