The Senate Select Committee released its final report on Australia as a Technology and Financial Centre, making 12 recommendations following extensive consultation from the sector.
BDO applauds the Select Committee for their final report, which has addressed the main concerns holding back the fintech sector. The 12 recommendations will see Australia continue to move towards developing a progressive Technology and Financial Sector, and becoming a competitor on the world stage.
Of particular significance in the report, was the clarity provided around the structure, regulation and treatment of digital assets, recommendations to amend Anti-money Laundering and Counter-Terrorism Financing (AML/CTF) laws and transparency around the de-banking processes of fintechs. Effectively, these recommendations will ensure continued innovation, more choice for Australians and an even playing field for all fintech players.
Summary
The Senate Select Committee released its final report on Australia as a Technology and Financial Centre following its first two interim reports in September 2020, and April 2021.
- This report primarily focuses on:
- The regulation of cryptocurrencies and digital assets.
- De-banking in Australian fintechs and other companies.
- The policy environment for neobanks in Australia.
- Options to replace the Offshore Banking Unit.
Cryptocurrency and Digital Assets
The report outlines the current regulation of the cryptocurrency sector in Australia and overseas, and also provides recommendations on how digital assets could be regulated in Australia. The goal is to promote innovation and attract investment, whilst still providing safeguards for investors and consumers.
The eight recommendations are:
- A properly designed Market Licence to assist in the regulation of DCEs, particularly for businesses dealing with asset volumes in the billions of dollars.
- An appropriate regime for custodial and depository services for digital assets.
- Token mapping to classify the various types of crypto-asset tokens and other digital assets being developed in the market.
- A new Decentralised Autonomous Organisation legal structure to ensure that emerging types of blockchain-based organisations can have clarity on operation within Australia.
- Reviewing the Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) regulations to ensure the regulations are fit-for-purpose and do not undermine innovation.
- Further clarification on taxation rules for digital assets, particularly around Capital Gains Tax (CGT) for cryptocurrency and digital assets.
- A tax concession for digital asset miners who source their own renewable energy.
- A policy review on the potential for a retail Central Bank Digital Currencies (CBDC) in Australia.
BDO Comment: “These eight recommendations – notably the recommendation of a Decentralised Autonomous Organisation - are a testament to the hard work that the digital asset sector has been advocating for some time, as well as the government’s recognition that innovative technologies have a deserving space on the agenda. These recommendations will provide a strong regulatory framework and more certainty while putting Australia in a leading position globally. Overall, this marks a new chapter and an ambitious plan for the future of Australia’s digital financial system.”
De-banking
In the third issues paper, a number of submissions to the inquiry raised concerns over the de-banking of Australian tech firms for unclear or unexplained reasons, and the impact of this on the businesses and the wider sector. The issue of de-banking is not a new issue, nor is it confined to Australia. It’s a global trend - specifically in the realm of cryptocurrency and payments. However, in Australia it is particularly prevalent in the remittance, payments and the digital assets sectors.
The core issues stemming from the banks decision to de-bank were driven by both policy frameworks and market conditions - including know your customer’ (KYC) compliance costs, and heightened risk aversion and uncertainty among financial institutions about AML/CTF and sanctions obligations, as well as uncertainty around the treatment of digital assets. Compounding this, is banks being prohibited from telling affected customers why they decided to cease their business relationship under AML/CTF rules, which in effect had the potential to be viewed as anti-competitive behaviour.
It is clear to the Select Committee that banks are often de-banking clients without adequate consideration or clear reasons and as such, have the additional recommendations:
9. A due diligence scheme should be finalised and implemented by June 2022 by the working group established by the Council of Financial Regulators.
10. A clear process for businesses that have been de-banked to have recourse to a complaints process, through the Australian Financial Complaints Authority.
11. More direct access for businesses to payment rails.
BDO Comment: “It is great to see that the Senate Committee has taken a proactive approach to issues related to the de-banking of fintechs - recommending a formal process involving the Australian Financial Complaints Authority with an appeals mechanism. This is great news for both fintechs and banks because it will provide an open and transparent system that enables banks to appropriately control their risks, while ensuring anti-competitive behaviour is not occurring. We’ve heard from de-banked fintechs who were unable to access banking services or the needed infrastructure to support their business, without consultation or recourse, which impacts on the innovation of the whole fintech ecosystem. For banks, this paper provides more guidance from regulators in their response to AML/CTF regulation, whilst offering the possibility of a mechanism to justify a decision to de-bank. This, alongside other recommendations, such as the review of AML/CTF regulations and certainty in the treatment of digital assets will provide more assurance for banks and enable fintechs more opportunity to innovate.”
Offshore Banking Unit
The 12th recommendation made by the Select Committee is to establish a Global Markets Incentive to replace the Offshore Banking Unit regime by the end of 2022.
Key Takeaways
Australia should grasp the opportunity to refresh and update the regulatory frameworks whilst avoiding restrictions to our growth in innovation and global competitiveness. There is significant potential for Australia to progress as a technology and financial centre and this is well exemplified in the Select Committee’s final report on Australia as a Technology and Financial Centre.
BDO is looking forward to working with key stakeholders in the fintech sector and with the Australian government, to observe and implement the Select Committee’s strong recommendations.