ASIC’s enhanced regulatory sandbox commenced on 1 September 2020, giving innovative businesses the opportunity to test their products in a ‘regulation-lite’ environment for up to 24 months without holding an Australian financial services or credit licence.
The new sandbox supersedes the previous sandbox exemption introduced in late 2016, which was more limited in scope and only applied for up to 12 months unless ASIC granted an extension.
Who can use the enhanced regulatory sandbox?
The enhanced sandbox is available to certain financial services and credit providers who can satisfy ASIC that that the product or service they are offering:
- is either new or a new adaptation or improvement of an existing product or service; and
- will be likely to result in a net benefit to the public.
Subject to satisfying ASIC about these matters, the enhanced sandbox is potentially available to a broad range of financial services and credit providers who deal with retail and/or wholesale clients, including financial product advisers, financial product issuers, crowd-funding services, and those engaged in credit activities.
Limits and conditions
However, there are important limits and conditions which apply to businesses using the enhanced sandbox. These include:
- a $10,000 per-client limit on financial services provided to retail clients;
- a $25,000 per-client limit on credit contracts; and
- a $5 million total exposure limit for all financial and credit services provided.
Certain financial and credit services and products are also excluded from the sandbox, such as derivatives and margin loans.
Other conditions of the enhanced sandbox include disclosure and conduct requirements, becoming a member of the Australian Financial Complaints Authority, having adequate professional indemnity insurance if dealing with retail clients or engaging in credit activities, and reporting to ASIC at the end of the sandbox period about the activities the business conducted using the sandbox.
At the end of the sandbox period, businesses will need to ensure that they are adequately authorised or licensed to continue conducting business.
Interested in using the sandbox?
As with all regulatory regimes, the devil is in the detail. Businesses will need to ensure that they fully understand the enhanced regulatory sandbox before they decide whether it suits their proposed business model. Please contact Addisons Corporate Advisory team if you would like further advice in this regard.
This article is part of the 2020 Financial Services Newsletter, click here to download.
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