12 October 2017

Address to the Credit Law Conference, Marriott Resort & Spa, Surfers Paradise


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Good morning, everyone — thanks so much for that welcome. And thanks, also, to the organisers of this event and its many sponsors.

It’s great to be here with you in sunny Surfers. It’s remarkable how this place has changed over the last few years.

To locals and visitors alike, it’s been re-energised — revitalised!

There’s construction happening, seemingly, around every corner. There’s a tram hurtling by. And, of course, the Commonwealth Games will be here before we know it.

Clearly, Surfers is going places. It’s got an eye on the future, and that makes it a great location for this conference — one that’s determined to take a long view of the financial sector, especially when it comes to credit and lending.  

Now this is, as most of you are aware, the 27th installment of this event. And a lot’s changed in that time, particularly the importance of innovation — of technology — in forging successful businesses.

That’s the case whether they’re large or small, and I want to say a bit about that while I’m here today — with a special focus on financial technology, or FinTech.

Financial Technology (FinTech)

It’s something that’s described by many in the industry, and in the media, as “revolutionary” — and I’d say they’re right on that score.

Our financial system, our economy, is undergoing a transformation — and FinTech is, in many ways, at the forefront of this. 

It’s changing the way business does business and opening new doors — through which there’s new products, more choice and, crucially, better value for the punters.

In short, it’s pushing businesses to do better, to be better — something I know they’re primed to do.

What’s more, Australia is particularly well-positioned to be a leading player in this global phenomenon.

Let me throw some numbers out there to underline this point.

Last year, according to KPMG, Australia became the second-largest alternative finance market in the Asia-Pacific, with a value of more than US$600 million.1

At the same time, we saw eight of our companies make the list of the world’s top-100 FinTech innovators.

And, over the last three years, the number of FinTech start-ups — which are, overwhelmingly, small businesses — has boomed from less than 100 to almost 600.

They’re exciting numbers. And what makes them more exiting is the diversity behind them. FinTech doesn’t just take in credit, payments and digital currencies — it also involves regtech (regulatory technology), data and analytics, and personal finance management.2 

Its reach — and its potential — is enormous. And that’s why the Coalition Government is very much on the bandwagon.

We see the benefits it brings to consumers and businesses — especially our go-getter small businesses, who are able to better compete with bigger rivals.

In fact, FinTech is one of the Treasurer’s pet issues. Any opportunity he gets, he’s out there talking it up or visiting start-ups.

He’s a believer. As he said in a speech just the other week, “It is still the most exciting time to be an Australian”.

And FinTech’s got a lot to do with it.

So with that in mind, the Government is continuing to make strides with its FinTech agenda — and adding to it, in fact.

In the most recent Budget, we outlined further measures to make sure FinTechs are getting the support they need to grow and prosper.

So let me, briefly, run through some of the broad FinTech-related measures with you.

The first is crowd-sourced equity funding.

Right from the start, this Government has understood that different forms of finance are critical for innovative, early-stage businesses — ones that may have trouble securing traditional sources of funding.

Money matters if you’re going to make your dream a reality. And that’s why we put in place a new crowd-sourced equity funding framework, which commenced a little less than two weeks ago.

Under this framework, public companies can now raise funds directly from a large number of small investors.

Additionally, the Government has introduced legislation to extend the crowd-sourced equity funding framework to proprietary companies — extending availability to many more businesses.

This will allow founders to crowdfund while still keeping the greater flexibility of the proprietary model — a huge win for them. 

Another important reform currently on the books is around digital currency, and removing double taxation.

Essentially, this will mean Australians are no longer charged GST on purchases of digital currency — allowing it to be treated the same way as money for GST purposes.

We’re committed to seeing this happen — to making it easier for new, innovative digital currency businesses to operate in Australia — and that’s why we’ve put legislation to the Parliament.

Moreover, the law change will be backdated to 1 July 2017 to bring it in line with the Budget announcement.

Also on this front, in August the Government introduced legislation to regulate digital currency exchange businesses under Australia’s anti-money laundering and counter-terrorism financing regime. 

Simply put, this bill will see regulation applied at the point digital currencies are exchanged for regulated, government-issued currencies.

This will close the regulatory gap in the coverage of this emerging industry — an action the industry has been supportive of — as well as mitigate the risk of it being misused for money laundering or the financing of terrorism.

And the last FinTech-related measure I want to mention — though, granted, there’s many more — is our regulatory sandbox.

Last December, ASIC established a regulatory sandbox to help FinTechs get a foothold in the commercial world.

For those of you who don’t know, the sandbox allows entrepreneurs to test specified new products and services without a financial services licence — albeit still subject to consumer protection obligations.

And we’re planning to take it further by legislating to allow more businesses to test a wider range of financial and credit services without a licence.

This will be teamed with an extended testing timeframe of 24 months — and, taken all together, will make a big difference for businesses wanting to try something different.

And, of course, it’ll promote choice and competition in the process.

Australian Financial Complaints Authority (AFCA)

So that gives you an idea of what the Government’s doing in the FinTech space.

And, since I’m here, I also want to flag a few other important developments that I know you’ll be interested to hear about.

I’ll start with the Australian Financial Complaints Authority.

The Government knows that there are more than 40,000 financial disputes lodged each year in Australia. And we need a new approach for dealing with them.

Our current resolution framework is, unfortunately, a product of history rather than design. Simply put, there’s too much duplication and too much confusion.

And, as a Government, we’ve said we need something better — a single body with the strength in its arm to make binding decisions while remaining independent and across financial matters.

So that’s why last month we introduced legislation to establish the ground-breaking Australian Financial Complaints Authority. It ticks all these boxes, and then some.

The new authority — which will commence on 1 July next year — will serve as a one-stop shop, providing a free, fast and binding resolution service for all financial disputes. And that’s the case whether they’re consumers, small businesses or larger financial firms.

What’s more, the authority will be industry-funded and governed by an independent chair and equal numbers of directors with industry and consumer backgrounds.

Moreover, to make sure the authority meets the higher standards in legislation, it will be subject to enhanced ASIC oversight and frequent independent reviews.

Small amount credit contracts (SACCs)

So that’s an important, and welcome, development.

And so, too, will be the Government’s changes to small amount credit contracts, or SACCs.

We’re currently looking to introduce changes to SACC laws following, as some of you know, an independent statutory review.

The review flagged high levels of repeat emergency credit borrowing among typically vulnerable Australians, noting that the average SACC customer takes out 3.64 loans each year — and some have more than one at a time.

And when it comes to consumer leases, the exemption from the 48 per cent cap that applies to all other credit products has seen interest rates well in excess of ten times the cap for consumer leases.  

It’s why the review made a series of recommendations, and it’s why the Government has committed to implementing, in full or in part, the vast majority of them.

The review stressed the importance of striking a balance — the right balance — between protecting consumers while allowing access to emergency finance. 

And that was very good to see. The Government understands the important economic role emergency finance plays by providing credit to people who, in many cases, might not be able to access mainstream credit.

So it was pleasing the review panel put forward recommendations that, as I said, strike a balance.

So that’s something to look out for, with the legislation being progressed in the coming months and changes to be applied 12 months later.

Mortgage broker remuneration

Then there’s ASIC’s recent review of mortgage broker remuneration, the report for which was released earlier this year.

In a nutshell, it found that the current ownership and remuneration structures could create conflicts of interest.

That said, however, it didn’t recommend government action.

Instead, it outlined six proposals for the industry, including improving the standard commission model and moving away from bonus commissions and soft-dollar benefits.

I agreed with that approach — and I’ve been encouraged by what’s been happening since.

I know that representatives from the mortgage broking industry, led by the MFAA and the Australian Bankers Association, have created a forum to discuss the industry’s response, with consumer group participation.

That was an important step forward — and a welcome one — and this response will be taken into account when the Government finalises its response to the review.

New powers and obligations

Now, before I finish there are two last things I want to very briefly mention.

Firstly, the product intervention power currently under development.

This has emerged in response to the Financial System Inquiry, and will allow ASIC to address potential issues associated with regulated financial and credit products where it’s of the view such products are causing significant consumer detriment.

This will be complemented by the design and distribution obligations, which are also under development.

These will, in essence, increase the accountability for product issuers and distributors by requiring them to target products to consumers who would benefit from them.

And, taken together, these measures will help make sure financial and credit products are designed with consumer needs in mind, while remaining flexible enough so industry can continue to innovate and provide high-quality products.

Concluding remarks

So let me finish by thanking you all for welcoming me here today, and for the opportunity to outline the Government’s agenda, particularly where it comes to FinTech and innovation.

It’s a big agenda; a bold agenda. And that’s without even going into the Government’s push to make Australia the very best place to start and grow a small business.

It’s a push that has seen the tax rate for small and medium-sized businesses dropped to its lowest level in 50 years; a push that has cut billions of dollars in red tape; and a push that has seen the $20,000 instant asset write-off extended for yet another year.

It shows our belief in enterprise and hard work. And we’re also, at the same time, showing those beliefs don’t have to come at the expense of the little guy, the consumer.

So enjoy the rest of your time in Surfers. Think hard, think big, and I hope to see you all again soon.

Thank you.

1 KPMG Cultivating Growth: The 2nd Asia Pacific Region Alternative Finance Industry Report, September 2017

2 KPMG Australian Fintech Landscape