Contributing editors Angus McLean and Penny Miller

165 Pages·2017·2.34 MB·English

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© Law Business Research 2017
Fintech 2018
Contributing editors
Angus McLean and Penny Miller
Simmons & Simmons
Publisher The information provided in this publication is
Law
Gideon Roberton general and may not apply in a specific situation.
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© Law Business Research 2017
CONTENTS
Introduction 5 Netherlands 86
Angus McLean and Penny Miller Jeroen Bos, Joyce Kerkvliet, Sophie Demper, Mattie de Koning,
Simmons & Simmons Machteld Hiemstra, Geneviève Borremans, Steven den Boer,
David Schreuders and Maarten ’t Sas
Simmons & Simmons
Australia 6
Peter Reeves
Gilbert + Tobin Norway 92
Espen Tøndel, Morten Wilhelm Winther, Sunniva Kinsella,
Marianne Arvei Moen and Marit Stubø
Belgium 14
Advokatfirmaet Simonsen Vogt Wiig AS
Muriel Baudoncq and Jérémie Doornaert
Simmons & Simmons LLP
Russia 98
Anastasia Didenko, Anton Didenko, Valeria Ivasikh and
China 21
Svetlana London
Jingyuan Shi CIS London & Partners LLP
Simmons & Simmons
Singapore 105
Czech Republic 27
Damian Adams, Jason Valoti, Gurjoth Kaur, Shaun Lee,
Loebl Zbyněk, Ditrych Jan, Kalíšek Jindřich and Zixiang Sun and Benedict Tan
Linhartová Klára Simmons & Simmons JWS Pte Ltd
PRK Partners s.r.o., Attorneys at Law
Spain 112
Germany 32
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Thomas Adam, Felix Biedermann, Carolin Glänzel, Carlos Jiménez de Laiglesia, Álvaro Muñoz, Juan Sosa
Martin Gramsch, Sascha Kuhn, Norman Mayr, and María Tomillo
Khanh Dang Ngo and Elmar Weinand Simmons & Simmons
Simmons & Simmons LLP
Sweden 118
Hong Kong 39
Emma Stuart-Beck, Caroline Krassén, Louise Nordkvist,
Ian Wood Henrik Schön, Nicklas Thorgerzon and Maria Schultzberg
Simmons & Simmons Advokatfirman Vinge
India 45 Switzerland 123
Stephen Mathias and Anuj Kaila Michael Isler and Thomas Müller
Kochhar & Co Walder Wyss Ltd
Indonesia 52 Taiwan 130
Abadi Abi Tisnadisastra, Yosef Broztito and Abe T S Sung and Eddie Hsiung
Raja S G D Notonegoro Lee and Li, Attorneys-at-Law
AKSET Law
United Arab Emirates 136
Ireland 58
Raza Rizvi, Muneer Khan, Neil Westwood, Samir Safar-Aly
Anne-Marie Bohan and Joe Beashel and Ines Al-Tamimi
Matheson Simmons & Simmons
Japan 65 United Kingdom 144
Ryuichi Nozaki, Yuri Suzuki, Hiroyuki Sanbe, Ryosuke Oue Angus McLean, Penny Miller, Sophie Lessar, George Morris,
and Takafumi Ochiai Darren Oswick, Kate Cofman-Nicoresti and Peter Broadhurst
Atsumi & Sakai Simmons & Simmons
Korea 72 United States 154
Jung Min Lee, Sophie Jihye Lee and Kwang Sun Ko Judith E Rinearson, Robert P Zinn, Anthony R G Nolan,
Kim & Chang
C Todd Gibson and Andrew L Reibman
K&L Gates LLP
Malta 78
Ruth Galea and Olga Finkel
WH Partners
2 Getting the Deal Through – Fintech 2018
© Law Business Research 2017
PREFACE
Preface
Fintech 2018
Second edition
Getting the Deal Through is delighted to publish the second edition
of Fintech, which is available in print, as an e-book and online at
www.gettingthedealthrough.com.
Getting the Deal Through provides international expert analysis in
key areas of law, practice and regulation for corporate counsel, cross-
border legal practitioners, and company directors and officers.
Throughout this edition, and following the unique Getting the Deal
Through format, the same key questions are answered by leading
practitioners in each of the jurisdictions featured. Our coverage this
year includes new chapters on Belgium, the Czech Republic, Indonesia,
Korea, the Netherlands, Singapore, Spain, Sweden and the United Arab
Emirates.
Getting the Deal Through titles are published annually in print.
Please ensure you are referring to the latest edition or to the online
version at www.gettingthedealthrough.com.
Every effort has been made to cover all matters of concern to
readers. However, specific legal advice should always be sought from
experienced local advisers.
Getting the Deal Through gratefully acknowledges the efforts of all
the contributors to this volume, who were chosen for their recognised
expertise. We also extend special thanks to the contributing editors,
Angus McLean and Penny Miller of Simmons & Simmons, for their
continued assistance with this volume.
London
August 2017
www.gettingthedealthrough.com 3
© Law Business Research 2017
Simmons & Simmons INTRODUCTION
Introduction
Angus McLean and Penny Miller
Simmons & Simmons
Since its emergence into the mainstream over the last few years, the informal feedback to innovative fintech businesses on the regulatory
financial technology (fintech) sector has captured the interest and implications of their business models. Still more regulators have estab-
imagination of entrepreneurs, investors, governments and regulators, lished ‘fintech bridges’ with regulators in other jurisdictions, although
not to mention incumbent financial services institutions. While those the nature and benefit of these arrangements is not always clear. The
incumbent businesses have been working hard to evaluate the risks extent and patchwork nature of these regulatory initiatives is now such
(and the potential benefits) created by the fintech revolution, lawyers that they are difficult to keep on top of. With this in mind, we have
and regulators around the globe have increasingly been grappling with included a new question 16 in this edition of the guide (in addition to
the legal and regulatory issues thrown up by these new disruptive tech- the previous question 15) to provide a snapshot of the current landscape
nologies and business models. of regulatory initiatives in this area. However, readers should be aware
that the frequency with which regulators are launching new fintech ini-
What is fintech? tiatives means that the answers to these questions may well need to be
The term ‘fintech’ is now used to describe a very broad range of business checked because in certain jurisdictions they will inevitably become
types. Peer-to-peer (or marketplace) lending, equity crowdfunding, out of date relatively quickly.
remittance, payments, digital currency, personal finance and wealth
management (including ‘robo-advice’) businesses are all commonly Regulatory change driving new fintech business models
captured under the banner. However, the term is also used to refer to In addition to helping new fintech businesses navigate their regulatory
start-up and digital-only banks and software businesses that provide regimes, many regulators are themselves providing the catalyst for
technology solutions to the financial services industry. This includes a new fintech business models to emerge through the new regulations
growing number of ‘regtech’ businesses, which offer software to assist they are promulgating. In Europe there is a host of businesses emerg-
financial services businesses in complying with their growing regula- ing to take advantage of opportunities created by new regulations that
tory obligations, and ‘insurtech’ businesses, which provide insurance will come into force over the next 12 months. This includes a range of
products and technology solutions. The term is also increasingly syn- fintech businesses that are seeking to leverage the enhanced access to
onymous with the plethora of businesses and consortia that are inves- payment systems and customer financial data that will be enabled by
tigating ways in which distributed ledger (or ‘blockchain’) technology the second Payment Services Directive (PSD2), coming into full force
(the software system that underpins digital currencies like bitcoin) can in January 2018. Other businesses are taking advantage of other regula-
be applied to other aspects of the financial services industry. tions, such as the second Markets in Financial Instruments Directive
(MiFID II) and the General Data Protection Regulation (GDPR), by
Regulatory impact developing technology solutions that help institutions comply with ele-
Each of these ‘verticals’ has its own unique set of legal issues, but there ments of those new regulations.
are important commonalities too; in particular, the impact of financial
services regulation on the fintech industry. Despite many adopting Pivots
the stereotypical trappings of Silicon Valley ‘tech’ start-ups (eg, jeans, Lawyers advising (and investors investing in) early-stage fintech busi-
trainers and the odd ping-pong table), fintech businesses are complex nesses should also keep in mind that those businesses often change
and very often operate in (or very close to) regulated areas. The bur- direction and business models (referred to in tech parlance as a ‘pivot’)
den of regulatory compliance is difficult for any business to manage, several times during their first few years of operation. Therefore, legal
even banks with armies of legal, risk and compliance experts. An added documentation and regulatory permissions put in place at the outset of
complication for fintech businesses is that their new business models a business’ lifecycle may soon become out of step with what the busi-
may well not fit squarely within the existing regulatory framework that ness is actually doing in practice.
is typically designed with traditional financial services businesses in
mind. Increasingly new rules are also being introduced to regulate dif- This publication is intended to provide a user-friendly resource to
ferent areas of the fintech industry. It is little wonder, therefore, that help fintech entrepreneurs and their advisers and investors around the
many fintech businesses at all stages of their lifecycles cite regulatory world navigate the often complex key legal and regulatory issues on
compliance as their number one headache. which we are most often asked to advise.
It is this issue that has, in part, led a number of regulators around In this second edition of the publication, we have made several
the world, including in the UK, Australia, Singapore, Abu Dhabi, Hong changes to the questions covered by the guide to reflect the way in
Kong, Thailand, Indonesia, Japan, Canada and Bahrain, to announce which the fintech sector has evolved in the 12 months that have passed
or investigate the establishment of ‘regulatory sandboxes’. These initi- since the first edition was published. However, even since we finalised
atives are intended to allow new fintech business models and technolo- the new questions for this edition significant new issues have arisen in
gies to be tested under the supervision of the regulator before they have areas such as digital currency (in particular the novel legal and regula-
received full authorisation. The relevant regulator can then evaluate tory issues thrown up by the emergence of initial coin offerings (ICOs)).
the risks presented by the new business models and technologies and Accordingly, we will inevitably have to update the questions when we
work out whether they should be regulated under any existing regimes turn our mind to the third edition, so we would very much value feed-
or if new regulations are required. back on other areas that we should cover in the future as the sector
Numerous regulators have also followed the UK’s FCA and continues to evolve. In the meantime, we hope this edition serves as
Australia’s ASIC in setting up special support services that provide a valuable reference point wherever you are on your fintech journey.
www.gettingthedealthrough.com 5
© Law Business Research 2017
AUSTRALIA Gilbert + Tobin
Australia
Peter Reeves
Gilbert + Tobin
Financial services regulation 2 Is consumer lending regulated in your jurisdiction? Describe
the general regulatory regime.
1 Which activities trigger a licensing requirement in your
jurisdiction? Consumer lending is regulated under the National Consumer Credit
Protection Act 2009 (Cth) (the NCCP Act) which is also administered
A person who carries on a financial services business in Australia must
by ASIC. The NCCP Act applies to persons or entities that engage in
hold an Australian financial services licence (AFSL), or be exempt from
consumer credit activities, which includes the provision of a credit con-
the requirement to be licensed.
tract or lease, securing obligations under a credit contract or lease and
The Corporations Act 2001 (Cth) (the Corporations Act),
providing credit services.
which is administered by the Australian Securities and Investments
The NCCP Act only applies to credit services provided to natural
Commission (ASIC), states that a financial services business is taken
persons or strata corporations, wholly or predominantly for personal,
to be carried on in Australia if, in the course of the person carrying on
household or domestic purposes. However, it is anticipated that this
the business, they engage in conduct that is intended to induce people
regime will be extended to capture small business lending.
in Australia to use the financial services they provide or is likely to have
Where the NCCP Act applies, the credit provider must hold an ACL
that effect, whether or not the conduct is intended, or likely, to have
or be exempt from the requirement to hold an ACL.
that effect in other places as well.
In a retail marketplace lending context (as opposed to business to
Broadly, financial services include the provision of financial prod-
business), the regime under the NCCP Act and the obligations imposed
uct advice, dealing in financial products (as principal or agent), making
mean that in Australia, the platform structure is not truly peer to peer.
a market for financial products, operating registered schemes and pro-
ACL holders are subject to general conduct obligations, including:
viding custodial or depository services.
• acting efficiently, honestly and fairly;
A financial product is a facility through which, or through the
• being competent to engage in credit activities;
acquisition of which, a person makes a financial investment, manages a
• ensuring clients are not disadvantaged by conflicts of interest;
financial risk or makes a non-cash payment. Examples of financial prod-
• ensuring representatives are competent and comply with the
ucts include securities (eg, shares and debentures), interests in collec-
NCCP Act;
tive investment vehicles known as managed investment schemes (eg,
• having internal and external dispute resolution systems;
units in a unit trust), payment products (eg, deposit products and non-
• having compensation arrangements;
cash payment facilities), derivatives and foreign exchange contracts.
• having adequate resources (including financial, technological and
The definitions of financial service and financial product under
human resources) and risk management systems; and
the Corporations Act are very broad and will often capture invest-
• having appropriate arrangements and systems to
ment, marketplace lending, crowdfunding platforms and other fin-
ensure compliance.
tech offerings.
Arranging (bringing about) deals in investments (ie, financial
ACL holders are also subject to responsible lending obligations to make
products), making arrangements with a view to effecting transactions
reasonable enquiries of consumers’ requirements and objectives, ver-
in investments, dealing in investments as principal or agent, advising
ify consumers’ financial situation and assess whether the proposed
on investments, and foreign exchange trading may trigger the require-
credit contract is suitable for consumers.
ment to hold an AFSL if such activities are conducted in the course of
There are also prescriptive disclosure obligations relating to the
carrying on a financial services business in Australia. Consumer credit
entry into, and ongoing conduct under, consumer credit contracts
facilities and secondary market loan trading are generally regulated
and leases. Consumers are entitled to challenge unjust transactions,
under the credit licensing regime (discussed below), however arrange-
unconscionable interest or charges and apply for a variation on hard-
ments that are established to facilitate investment or trading in such
ship grounds.
products (eg, marketplace lending or securitisation) may also trigger
All ACL holders must submit annual compliance reports to
the requirement to hold an AFSL.
ASIC disclosing any instances of non-compliance during the report-
An AFSL is not required to be held in relation to advising on and
ing period.
dealing in factoring arrangements provided certain conditions are met,
Consumer lending may also be subject to the consumer protec-
such as the terms and conditions of the factoring arrangement being
tion regime in the Competition and Consumer Act 2010 (Cth) (the
provided to any retail client before the arrangement is issued and an
Consumer Law).
internal dispute resolution system that complies with Australian stand-
ards being established and maintained.
3 Are there restrictions on trading loans in the secondary
Generally, an entity that takes deposits must, in addition to hold-
market in your jurisdiction?
ing an AFSL, be an authorised deposit-taking institution (ADI). The
Australian Prudential Regulation Authority (APRA) is responsible for If a secondary market is effected in a marketplace lending context,
the authorisation process (as well as ongoing prudential supervision). an AFSL may be required, and if the loans traded are consumer loans
A person who engages in consumer credit activities in Australia within the meaning of the NCCP Act, the offeror and acquirer of the
generally must hold an Australian credit licence (ACL), or be exempt loans may require an ACL.
from the requirement to be licensed. Packaging and selling loans in the secondary market may also trig-
ger the requirement to hold either or both an AFSL or ACL, depending
on the structure of the product and whether the loans are consumer
6 Getting the Deal Through – Fintech 2018
© Law Business Research 2017
Gilbert + Tobin AUSTRALIA
loans (however, exemptions from the requirement to hold an ACL are New structures
available for securitisation and special purpose funding entities). The government has proposed the introduction of two new collective
investment vehicle (CIV) structures – a corporate CIV and a limited
4 Describe the general regulatory regime for collective partnership CIV.
investment schemes and whether fintech companies It is expected that the proposed CIVs will take a similar form to the
providing alternative finance products or services would corporate and partnership CIVs used in other jurisdictions (eg, in the
generally fall within the scope of any such regime. United Kingdom under the Undertakings for Collective Investment in
Collective investment schemes in Australia can be ‘managed invest- Transferrable Securities regime). The corporate CIV will likely involve
ment schemes’ (MIS) (which can be contract-based schemes, unincor- a central investment company that manages underlying pooled assets,
porated vehicles (typically structured as unit trusts or unincorporated with investors holding securities in the company. The limited partner-
limited partnerships)) or bodies corporate (which are incorporated and ship CIV will likely involve investors joining as passive partners and
typically structured as companies or incorporated limited partnerships). assets managed by a managing partner.
Depending on the structure, a platform or scheme operated by The new structures will be required to meet similar eligibility cri-
a fintech company may fall within the scope of the Australian col- teria as managed investment trusts, including being widely held and
lective investment schemes regulations. They may also be subject engaging in primarily passive investment. Investors will be taxed as if
to AFSL, ACL, Consumer Law and financial services laws relating to they had invested directly in the underlying asset. It will be possible for
consumer protection under the Australian Securities and Investments the structures to be offered to both Australian and offshore investors,
Commission Act 2001 (Cth) (the ASIC Act). aligning with the proposed Asia Region Funds Passport (ARFP) initia-
tive (see question 6).
At the time of writing, it is expected that corporate CIVs will be
Unincorporated structures
introduced by July 2017 and limited partnership CIVs by July 2018.
Generally, an MIS that is operated by a financial services firm or a pro-
moter of MISs and that is open to retail clients, is required to be reg-
5 Are managers of alternative investment funds regulated?
istered with ASIC. The operator of such an MIS (a responsible entity)
will, typically, need to hold an AFSL covering the provision of general There is no separate regime for alternative investment funds in
financial product advice and dealing services in relation to interests in Australia. Australian investment funds, and fund managers, are all gen-
the scheme and the financial products and assets held by the scheme, erally subject to the same regulatory regime. However, funds offering
and to operate the scheme. particular asset classes may be subject to specific disclosure require-
The responsible entity must also comply with licence conditions ments (eg, property or hedge fund products).
and financial services laws. There are specific requirements relating to
the content of the scheme’s governing document, compliance arrange- 6 May regulated activities be passported into your jurisdiction?
ments and offer documents, and there are obligations to report to ASIC Australia has cooperation (passport) arrangements with the regula-
and audit scheme accounts. tors in the United States, the United Kingdom, Germany, Hong Kong,
The responsible entity must be a public company with at least three Singapore and Luxembourg, which enable foreign financial service
directors (two of whom are ordinarily resident in Australia) and it gen- providers (FFSP) regulated in those jurisdictions to provide financial
erally must hold unencumbered and highly liquid net tangible assets of services to wholesale clients in Australia without holding an AFSL.
at least the greater of A$10 million or 10 per cent of the average respon- Passport relief is available subject to the FFSP satisfying certain
sible entity revenue, unless an external custodian is engaged. conditions, which include providing materials to ASIC evidencing reg-
If the MIS is not required to be registered, the licensing, compli- istration under the laws of the provider’s home jurisdiction, consent-
ance, disclosure and regulatory capital requirements are generally ing to ASIC and the home regulator sharing information, appointing
less onerous. an Australian local agent and executing a deed poll agreeing to comply
with any order made by an Australian court relating to the financial ser-
Incorporated structures vices provided in this jurisdiction.
Australian companies are incorporated and regulated under the Passport relief is only available in relation to the provision of finan-
Corporations Act. Broadly, companies may be proprietary companies cial services to wholesale clients, and the FFSP must only provide in
limited by shares or public companies limited by shares. All companies Australia those financial services it is authorised to provide in its home
must have at least one shareholder, which can be another company. A jurisdiction. Before providing any financial services in Australia, the
proprietary limited company must have at least one director who ordi- FFSP must disclose to clients that it is exempt from the requirement to
narily resides in Australia. A public company must have at least three hold an AFSL and that it is regulated by the laws of a foreign jurisdic-
directors, two of whom ordinarily reside in Australia. Directors have tion. The FFSP must also notify ASIC of the occurrence of any signifi-
specific duties, including in relation to acting with care and diligence, cant matters (eg, investigations or regulatory actions) applicable to the
avoiding conflicts of interest and avoiding insolvent trading, for which financial services it provides in Australia.
they may be personally liable in the event of non-compliance. All com- The instruments effecting passport relief were due to expire
panies must report changes to its officers, and share capital and com- (‘sunset’) between 1 October 2016 and 1 April 2017. In late 2016, ASIC
pany details to ASIC. Large proprietary companies, public companies simultaneously repealed the passport relief instruments and extended
and foreign-controlled companies must lodge annual audited accounts the operation of the relief to 1 October 2018. During the transitional
with ASIC which are made publicly available. period, ASIC will review the framework for passport relief and intends
Australian fintech companies may meet the criteria for classifica- to release a consultation paper in January 2018 with its proposals to
tion as an ‘early stage innovation company’ (ESIC), which includes remake relief.
expenditure of less than A$1 million and assessable income of less than Australia is also a founding member of the ARFP, which is a region-
A$200,000 in an income year, having only recently been incorporated wide initiative to facilitate the offer of interests in certain collective
or commenced carrying on a business and being involved in innova- investment schemes established in ARFP member economies. Once
tion. Tax incentives are available for investors in ESICs. implemented, the ARFP will facilitate the offer of Australian registered
Limited partnerships may be incorporated in some or all Australian MISs in member economies, subject to compliance with home econ-
states and territories (the incorporation process is broadly similar omy laws relating to the authorisation of the scheme operator, host
across jurisdictions). Once incorporated, a partnership must notify the economy laws relating to the scheme’s interaction with clients (eg, dis-
relevant regulator of changes to its registered particulars. Incorporation closure) and special passport rules relating to registration, regulatory
is typically sought in connection with an application for registration as control and portfolio allocation. The member economies are currently
a venture capital limited partnership (VCLP), or early stage venture working towards implementing domestic arrangements and the ARFP
capital limited partnership (ESVCLP) under the Venture Capital Act is expected to be effective by the end of 2017.
2002 (Cth) (VCA), which are partnership structures commonly used
for venture capital investment (including investment in fintech) due to
favourable tax treatment.
www.gettingthedealthrough.com 7
© Law Business Research 2017
AUSTRALIA Gilbert + Tobin
7 May fintech companies obtain a licence to provide financial are met (around terms and conditions and dispute resolution pro-
services in your jurisdiction without establishing a local cesses) an AFSL is not required. However, Anti-Money Laundering
presence? and Counter-Terrorism Financing Act 2006 (Cth) (the AML/CTF
A foreign company that carries on a business in Australia (including a Act) requirements (see below) generally apply in relation to factoring
financial services business) must either establish a local presence (ie, arrangements. The factor could also be taken to be carrying on busi-
register with ASIC and create a branch) or incorporate a subsidiary. ness in Australia in relation to the factoring arrangements and could
Certain activities will cause an entity to be deemed to be carrying on trigger the ASIC registration requirement described above.
business in Australia. Generally, the greater the level of system, rep- Whether an invoice trading business is otherwise regulated within
etition or continuity associated with an entity’s business activities in the existing consumer protection, financial services and credit regula-
Australia, the greater the likelihood that the registration requirement tory frameworks will depend on the structure, including whether there
will be triggered. An insignificant and one-off transaction will arguably are consumer debts being traded.
not trigger the registration requirement; however, a number of small
transactions occurring regularly, or a large one-off transaction, may. 11 Are payment services a regulated activity in your jurisdiction?
Generally, if a company obtains an AFSL it will be carrying on a Payment services are regulated across several pieces of legislation and
business in Australia and will trigger the registration requirement. industry regulations and codes.
Payment services may be regulated as financial services under the
8 Describe any specific regulation of peer-to-peer or Corporations Act where such service relates to a:
marketplace lending in your jurisdiction. • deposit-taking facility made available by an ADI in the course of
Peer-to-peer or marketplace lending is regulated within the existing carrying on a banking business; or
consumer protection, financial services and credit regulatory frame- • facility through which a person makes a non-cash payment.
works. Retail peer-to-peer or marketplace lending platforms are often
structured as MISs and there will generally be an AFSL and ACL within In such circumstances, the service provider must hold an AFSL or be
the structure. exempt from the requirement to hold an AFSL.
ASIC has published guidance on advertising marketplace lending Payment services relating to a deposit taking facility or a pur-
products, which promoters should consider in addition to general ASIC chased payment facility must be provided by an APRA-regulated
guidance on advertising financial products. The guidance notes that ADI. Payment systems and purchased payment facilities (eg, smart
references to ratings of borrowers’ creditworthiness should not create cards and electronic cash) are regulated under the Payment Systems
a false or misleading impression that they are similar to ratings issued (Regulation) Act 1998 (Cth) which is administered by the Reserve Bank
by traditional credit rating agencies and that it is not appropriate for of Australia (RBA).
comparisons to be made between marketplace lending products and Payment services are generally ‘designated services’ under the
banking products. AML/CTF Act. The AML/CTF Act regulates providers of designated
services, referred to as ‘reporting entities’. Key obligations include
9 Describe any specific regulation of crowdfunding in your enrolling with the Australian Transaction Reports and Analysis Centre
jurisdiction. (AUSTRAC); conducting due diligence on customers prior to providing
In March 2017, the Corporations Amendment (Crowd-sourced any services; and adopting and maintaining an AML/CTF programme
Funding) Act (Cth) (the CSF Act) received royal assent, providing and reporting annually to AUSTRAC and as required on the occurrence
a regulatory framework for crowd-sourced equity funding (CSF) in of a suspicious matter, a transfer of currency with a value of A$10,000
Australia. The CSF Act, among other things, sets out requirements for or more, and all international funds transfer instructions.
eligible companies and eligible offers, requirements for how the offer There are a number of industry regulations and codes that also
must be made and obligations on CSF intermediaries (ie, the platform regulate payment services in Australia, including the regulations
operators) in respect of platforms. The CSF Act includes the follow- developed by the Australian Payments Clearing Association, the Code
ing features: of Banking Practice and the ePayments Code. Although such codes
• the offers must be made by ‘eligible CSF companies’ – unlisted are voluntary, it is common for providers of payment services to adopt
public companies with less than A$25 million in consolidated gross applicable codes.
assets and less than A$25 million in annual revenue;
• the offer must meet certain requirements, including a fundraising 12 Do fintech companies that wish to sell or market insurance
cap of A$5 million in any 12-month period; products in your jurisdiction need to be regulated?
• the offer must be made via a ‘CSF offer document’ which will Companies must be authorised by APRA in order to carry on an insur-
involve reduced disclosure requirements, and must be published ance business in Australia, and companies must hold an AFSL in order
on the platform of a single CSF intermediary; to market or sell insurance products in Australia.
• CSF intermediaries must be licensed to provide crowdfunding ser-
vices; and 13 Are there any legal or regulatory rules in your jurisdiction
• investment caps for retail investors of A$10,000 per issuer per regarding the provision of credit references or credit
12-month period. information services?
The provision of credit references in Australia is subject to the Privacy
As part of the Federal Budget 2017, the government moved to extend
Act 1988 (Cth) (the Privacy Act). The Privacy Act provides that only
the reach of the CSF reforms to proprietary companies. Features of the
credit reporting agencies (corporations that carry on a credit reporting
draft legislation include:
business) are authorised to collect personal information, collate such
• eligibility requirements: a CSF eligible company includes propri-
information in credit information files and disclose this information to
etary companies with at least two directors that also satisfy any
credit providers. Credit reporting agencies must comply with obliga-
other prescribed regulatory requirements;
tions under the Privacy Act with regard to the use, collection and dis-
• disclosure requirements: CSF offers must be made via a CSF
closure of credit information.
offer document, which will involve reduced disclosure require-
ments; and
14 Are there any legal or regulatory rules in your jurisdiction that
• CSF shareholders not to count towards member limit: a CSF share-
oblige financial institutions to make customer or product data
holder, being an entity that holds securities issued pursuant to a
available to third parties?
CSF offer, is not counted towards the 50-member statutory limit
for proprietary companies. There are legal and regulatory rules that oblige financial institutions to
make customer or product data available to third parties. For example,
10 Describe any specific regulation of invoice trading in your the AML/CTF Act requires an ordering institution (as defined in that
jurisdiction. act) to pass on certain information about a customer (a payer) and a
Factoring arrangements generally require that the factor hold an AFSL; transaction to other entities in a funds transfer, where such information
however, regulatory relief is available such that if certain conditions may include customer and product data.
8 Getting the Deal Through – Fintech 2018
© Law Business Research 2017
Gilbert + Tobin AUSTRALIA
Legal and regulatory rules also require a financial institution to dis- Marketing materials (including advertisements) must not be mis-
close customer or product data to regulators in certain circumstances leading or deceptive and are expected to meet ASIC advertising guid-
(generally breach or likely breach of an applicable requirement). ance, including:
• advertisements should give a balanced message about the product;
15 Does the regulator in your jurisdiction make any specific • warnings, disclaimers and qualifications should be consistent and
provision for fintech services and companies? If so, what given sufficient prominence to effectively convey key information;
benefits do those provisions offer? • fees or costs should give a realistic impression of the overall level of
The ASIC Innovation Hub is designed to foster innovation that could fees and costs a consumer is likely to pay;
benefit consumers by helping Australian fintech start-ups navigate the • industry concepts and jargon should be avoided; and
Australian regulatory system by providing access to informal assis- • advertisements should be capable of being clearly understood by
tance intended to streamline the licensing process for innovative fin- the audience and should not suggest the product is suitable for a
tech start-ups. particular type of consumer unless the promoter has assessed that
ASIC has implemented a regulatory sandbox, the features of the product is so suitable.
which include a testing window that allows certain financial services
and products to be provided without a licence; an ability for sophis- 18 Are there any foreign exchange or currency control
ticated investors to participate with a limited number of retail clients restrictions in your jurisdiction?
(within monetary exposure limits); and modified conduct and disclo- A person is restricted from transferring funds to a country or person
sure obligations. who is the subject of a sanction law.
As part of the Federal Budget 2017, the government announced Although not a restriction, a person (typically an ADI) who sends
plans to legislate an enhanced regulatory sandbox encouraging testing or receives an international funds transfer instruction must report the
of a wider range of financial products and services without a licence. details of such instruction to AUSTRAC. Such transfers are subject to
The regulatory sandbox will include an extended 24-month testing AML/CTF Act compliance requirements imposed on the institutions
time frame, providing eligible businesses with a greater window to test effecting the transaction.
their products.
ASIC has also released guidance on issues that providers need to 19 If a potential investor or client makes an unsolicited approach
consider when providing digital advice (which is advice that is pro- either from inside the provider’s jurisdiction or from another
duced by algorithms and technology). jurisdiction, is the provider carrying out a regulated activity
AUSTRAC’s newly established Fintel Alliance has announced an requiring a licence in your jurisdiction?
innovation hub targeted at improving the fintech sector’s relationship Generally, an offshore provider can address requests for information,
with the government and regulators. The hub will test a regulatory pitch and issue products to an Australian investor if the investor makes
sandbox for fintech businesses to test financial products and services the first approach (ie, there has been no conduct designed to induce the
without risking regulatory action or costs. investor, or that could be taken to have that effect) and the service is
provided from outside Australia.
16 Does the regulator in your jurisdiction have formal If the unsolicited approach relates to credit activities that are regu-
relationships or arrangements with foreign regulators in lated under the NCCP Act (broadly, consumer credit), the provider is
relation to fintech activities? required to hold an ACL irrespective of the unsolicited approach.
ASIC has arrangements with the Hong Kong Securities and Futures
Commission (SFC), the Monetary Authority of Singapore (MAS), the 20 If the investor or client is outside the provider’s jurisdiction
UK’s Financial Conduct Authority (FCA), Canada’s Ontario Securities and the activities take place outside the jurisdiction, is the
Commission (OSC), the Capital Markets Authority of Kenya (CMA), provider carrying out an activity that requires licensing in its
Indonesia’s Otoritas Jasa Keuangan (OJK), the Japan Financial Services jurisdiction?
Agency (JFSA) and the Malaysian Securities Commission (SC). A provider is generally not required to hold an AFSL or ACL if the finan-
Under ASIC’s agreements with CMA and OJK, the regulators have cial service or consumer credit activity is undertaken outside Australia.
committed to sharing information in their respective markets relat- However, if the provider otherwise carries on a financial services or
ing to emerging market trends and the regulatory issues arising as a consumer credit business in Australia, the provider cannot avoid the
result of growth in innovation. Under ASIC’s agreements with SFC, requirement to hold the relevant licence by structuring the service such
FCA, MAS, OSC, JFSA and SC, the regulators will be able to refer to that the relevant activity is undertaken or effected offshore.
one another innovative businesses seeking to enter the others’ market.
Under ASIC’s agreement with the FCA, innovative businesses will 21 Are there continuing obligations that fintech companies must
also be given help during the authorisation processes with access to comply with when carrying out cross-border activities?
expert staff and, where appropriate, the implementation of a special-
Fintech companies must comply with the Australian financial services
ised authorisation process. Following authorisation, the businesses will
and credit legislation, including when carrying out cross-border activi-
have a dedicated regulator contact for a year.
ties, where such activities relate to the provision of financial services or
ASIC is also signatory to the IOSCO Multilateral Memorandum
credit in Australia or its external territories.
of Understanding, which has committed over 100 regulators to mutu-
The conduct of a fintech company offshore may also impact on the
ally assist and cooperate with each other, particularly in relation to the
company’s compliance with its obligations under the Australian regu-
enforcement of securities laws.
latory framework. For example, misconduct by a representative that
occurs in another jurisdiction may cause ASIC to investigate the licen-
17 Are there any local marketing rules applicable with respect
see’s compliance with local obligations.
to marketing materials for financial services in your
The Privacy Act applies to the cross-border activities of an
jurisdiction?
Australian organisation to whom the act applies (see question 41 for
Marketing financial services may itself constitute a financial service further details). The AML/CTF Act also has cross-border application
requiring an AFSL, or reliance on an exemption. where designated services are provided by a foreign subsidiary of an
If financial services will be provided to retail clients, a financial Australian company and such services are provided at or through a per-
services guide must first be provided, setting out prescribed informa- manent establishment of the subsidiary in a foreign jurisdiction.
tion, including the provider’s fee structure, to assist a client to decide
whether to obtain financial services from the provider. 22 What licensing exemptions apply where the services are
Generally, any offer of a financial product to a retail client must provided to an account holder based outside the jurisdiction?
be accompanied by a disclosure document which satisfies the content
Generally, there are no licensing exemptions that specifically apply
requirements in the Corporations Act. There are exemptions from
where the services are provided in Australia through an offshore
the requirement to provide a disclosure document in certain circum-
account. However, this may affect the nature of the authorisa-
stances (eg, a small-scale offer) and where the offer is made to whole-
tions required.
sale clients only.
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AUSTRALIA Gilbert + Tobin
Distributed ledger technology up, which means that the relevant secured party will lose any interest
they have in the relevant collateral the subject of the unperfected secu-
23 Are there any legal or regulatory rules or guidelines in
rity interest.
relation to the use of distributed ledger (including blockchain)
technology in your jurisdiction?
27 Is it possible to transfer loans originated on a peer-to-peer
Currently, there are no legal or regulatory rules or guidelines relating to or marketplace lending platform to the purchaser without
the use of distributed ledger technology (DLT) in Australia. However, informing the borrower? Does the assignor require consent
in March 2017 ASIC released guidance to inform businesses consider- of the borrower or are the loans assignable in the absence of a
ing operating market infrastructure or providing financial or consumer prohibition?
credit services using DLT of how ASIC will assess compliance by the
Loans originated on a peer-to-peer lending platform may be trans-
provider with applicable licence conditions.
ferred to a purchaser without informing or obtaining consent from the
borrower. The assignee must provide a copy of its credit guide to the
Digital currencies
borrower as soon as practicable after assignment.
24 Are there any legal or regulatory rules or guidelines in relation
to the use of digital currencies or digital wallets, including 28 Would a special purpose company for purchasing and
e-money, in your jurisdiction? securitising peer-to-peer or marketplace loans be subject to
a duty of confidentiality or data protection laws regarding
Currently, digital currencies are generally unregulated in Australia.
information relating to the borrowers?
The RBA, ASIC and AUSTRAC have each made statements confirming
virtual currencies are (at this point in time), in and of themselves, out- A company that purchases or securitises peer-to-peer loans must com-
side their existing areas of concern or legal definitions that form their ply with the Privacy Act, to the extent the act applies to the company
regulatory functions. However, several Australian regulators (including and its conduct. The company must also comply with any duty of confi-
those listed, and the Australian government more broadly) are consid- dentiality in the underlying loan or security agreement.
ering expanding the scope of regulation to include virtual currencies,
and we expect this to be on the regulatory agenda for 2017. Intellectual property rights
The facilitation of payment by virtual currencies may require that
29 Which intellectual property rights are available to protect
the facilitator hold an AFSL or be entitled to rely on an exemption.
software, and how do you obtain those rights?
Digital currencies are subject to the general consumer protection
Copyright in software (including source code) is automatically pro-
provisions, whereby providers must not make false or misleading rep-
tected by legislation. An owner may also apply to IP Australia for soft-
resentations or engage in unconscionable conduct.
ware to be registered or patented.
The Australian Taxation Office (ATO) has released public rul-
Software can also be protected contractually through confidential-
ings on the tax treatment of digital currencies, including capital gains
ity agreements between parties.
tax when using digital currency for investment or business purposes,
income tax on the profits of businesses providing an exchange service,
30 Is patent protection available for software-implemented
buying, selling or mining digital currency, and fringe benefits tax appli-
inventions or business methods?
cable to remuneration paid in digital currency where there is a valid sal-
ary sacrifice arrangement. In relation to the GST treatment of digital Patent protection is available for certain types of software (eg, computer
currencies, please refer to question 45. operating systems and computational methods). Patents are not availa-
ble for source code, which is usually protected by copyright legislation.
In relation to digital wallets, depending on the nature of the wal-
let, the person providing the wallet may be required to hold an AFSL or
31 Who owns new intellectual property developed by an
ACL, or be exempt from the requirement to be licensed, and may have
employee during the course of employment?
obligations under the AML/CTF Act. Depending on the data captured
by the wallet, the person providing the wallet may also need to comply The employer generally owns new intellectual property rights devel-
with the Privacy Act. oped in the course of employment, unless the terms of employment
contain an effective assignment of such rights to the employee.
Securitisation
32 Do the same rules apply to new intellectual property
25 What are the requirements for executing loan agreements developed by contractors or consultants? If not, who owns
or security agreements? Is there a risk that loan agreements such intellectual property rights?
or security agreements entered into on a peer-to-peer or
The consultant or contractor generally owns new intellectual prop-
marketplace lending platform will not be enforceable?
erty rights developed in the course of engagement, unless the terms
The requirements for executing loan or security agreements are gen- of engagement contain an effective assignment of such rights to
erally set out in the underlying document. A lender has the right to the company.
enforce its contractual claim for repayment, and may sue for repay-
ment in the courts. A secured lender may also have enforcement rights 33 Are there any restrictions on a joint owner of intellectual
under the Personal Property Securities Act 2009 (Cth), in addition to property’s right to use, license, charge or assign its right in
contractual rights. intellectual property?
There is a risk that loans or securities originated on a peer-to-peer
Generally, joint ownership restricts a single owner from using, licens-
or marketplace lending platform are not enforceable on the basis the ing, charging or assigning a right in intellectual property without the
underlying agreement is invalid. agreement of the other joint owner(s), subject to any pre-existing
agreement with the other joint owner(s).
26 What steps are required to perfect an assignment of loans
originated on a peer-to-peer or marketplace lending 34 How are trade secrets protected? Are trade secrets kept
platform? What are the implications for the purchaser if the confidential during court proceedings?
assignment is not perfected?
Trade secrets are considered proprietary and confidential, and are
Generally, the assignment of a loan (including loans originated on automatically protected. An owner of trade secrets can pursue a dis-
peer-to-peer lending platforms) is effected by a deed of assignment, closer for a breach of confidentiality; however, the owner must be able
which is perfected by the assignee taking control of the loan. No addi- to demonstrate it has made ‘reasonable efforts’ to protect such infor-
tional steps are required to perfect the assignment. If the assignment is mation (eg, by requiring employees to sign confidentiality agreements).
not effected by a valid deed, the assignment may constitute a deemed A party can apply to a court to make an order to close or clear
security interest and is perfected by the assignee registering the inter- the court where the presence of the public would frustrate or render
est on the Personal Property Securities Register. Failure to register may impracticable the administration of justice. Australian courts have a
mean that the security interest is void as against a liquidator and an power to close a court to protect trade secrets or confidential commer-
unperfected security interest will ‘vest’ in the grantor on its winding cial information in certain exceptional circumstances.
10 Getting the Deal Through – Fintech 2018
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