1 October 2020
By Zann Maxwell, AusPayNet Policy Analyst
‘As Australia faces its first recession in 30 years, it’s clear we need more jobs and the only way to do that is to embrace technology and become globally competitive,’ said Senator Andrew Bragg as he tabled the Interim Report of the Senate Select Committee on Financial Technology and Regulatory Technology in September 2020. ‘It is my hope this interim report can be seen as a series of quick wins: new jobs and more choice.’
When the committee was first set up, it released an Issues Paper resolving to report on the following matters:
The committee received more than 200 written submissions from a broad range of stakeholders, most of which are public. They also held ten public hearings.
AusPayNet’s submission to the Inquiry (submission 99) outlined a number of significant projects that AusPayNet has delivered over the past year, including the Card-Not-Present (CNP) Fraud Mitigation Framework, Guidelines for accessibility in PIN entry on touchscreen terminals, and through support to the Australian Payments Council, the creation of the TrustID framework. It also highlighted our current work to create a non-technical guide to payments, with the aim of assisting new entrants such as FinTechs to navigate access to the payments system.
Drawing on these submissions, the committee’s Interim Report is a substantial 281-page document. Though it is not the final report, it does contain 32 recommendations to the executive government covering a range of subjects. These include some areas of general interest to the fintech industry, such as the challenges posed by COVID-19, taxation issues, access to capital, and how to grow the pool of talent and skills for the industry to draw on.
There are also several sections of the Report that contain recommendations of particular relevance to the payments industry.
There was a strong general emphasis on fostering a ‘pro-innovation’ and ‘pro-competition’ regulatory culture in the fintech and financial services space.
Senator Bragg said in his tabling speech the way competition in financial services is regulated is ‘… fragmented and unclear, with the ACCC, ASIC, APRA and the RBA all playing roles.’ The committee reported that submissions to the Inquiry identified this fragmentation as a risk.
To encourage Australia's financial regulators to collectively provide greater focus on promoting competition and innovation in the financial system, the committee recommended providing the Council of Financial Regulators (CFR) with a ‘competition mandate’ as advice to the government and that the CFR regularly report on competitive dynamics in the Australian financial services market. They believe that this would help ensure that it ‘… regularly reports on competitive dynamics in the Australian financial services market and provides advice on these issues to government’.
To promote innovation, the committee emphasised its support for ‘self-regulation’ or ‘co-regulation’ (collaboration between industry and government) when innovative new business models do not fit neatly within existing regulations. They see industry self-regulation as an ‘… efficient way for innovative products in the financial services sector to emerge, while ensuring adequate protections for consumers’.
The committee uses the example of ‘buy now pay later’ (BNPL) to illustrate this, saying:
‘Because innovation like BNPL often occurs on the fringes of regulation, it is inappropriate to force each innovation into a one size fits all approach. Industry self-regulation provides an initial framework to protect innovation which can later be backed up by a policy statement or a form of co-regulation’.
To further illustrate their point, the committee refers to the Australian Finance Industry Association’s (AFIA) development of an industry code of practice in the BNPL sector as an example of where industry is working constructively to respond to stakeholder concerns.
The Consumer Data Right (CDR) comes in for major focus in this Interim Report, with the committee describing it as a ‘… complex and ground-breaking reform that will, over time, deliver increased competition and significant benefits to consumers across the Australian economy.’
The committee says that it is time for a ‘… clear, effective and accountable regulatory structure for all aspects of data management and privacy in the digital economy’. In particular, they argue that oversight of the CDR by three different regulatory bodies is ‘unnecessarily fragmented’, and regulatory arrangements need to be consolidated into a single body to manage this program. To address this, the committee recommends a new national body be established to take on regulatory and operational responsibility for the CDR.
For the CDR to reach its full potential, it is crucial that a wide range of intermediary third-party organisations can access CDR Open Banking data. The committee heard significant concerns that the current, single accreditation level of 'unrestricted data recipient' is not a realistic proposition for many FinTechs due to the costs and complexity of accreditation.
The committee noted that the ACCC is currently undertaking a consultation process on draft rules relating to this, but recommends that the rules for an appropriate accreditation regime for third parties and intermediaries be determined as soon as possible.
The committee also heard strong views from both supporters and opponents of the digital data capture practice, commonly called 'screen scraping'. Referring to the fact that ASIC ‘… has found no evidence of consumer harm as a result of these practices’ the committee recommended refraining from an outright ban on screen scraping at the present time. However, they do suggest that this should continue to be monitored as Open Banking is rolled out, and that ‘ASIC's current consideration of the ePayments Code will also provide important input on this issue’.
The committee considers that accelerating progress towards a national framework for a federated digital identity ecosystem is especially important as Australia navigates the COVID-19 crisis. They believe these reforms will see ‘… significant time and cost savings to individuals and businesses, as well as creating opportunities for innovative FinTechs and others working in the digital identity space.’
The committee urges that legislative work being developed by The Digital Transformation Agency (DTA) be accelerated, including ‘… continuing to expand the range of federal government services accessible under the myGovID digital identity’.
The committee was keen to emphasise that they see the New Payments Platform (NPP) as a ‘… vital piece of market infrastructure that will underpin improvements in the payments system and across financial services in Australia in the years to come’.
Despite many of the submissions focusing heavily on the NPP and much commentary on it within the Interim Report, the only recommendation in this area is for NPP Australia to regularly report on implementation progress of the NPP roadmap in order to drive wider access to the platform. The committee noted, however, that:
‘… there are a range of options available in the case that further measures are required to ensure fair and equitable access to the NPP for FinTechs and smaller market participants, including a regulated access regime or support for NPP access costs and transaction fees.’
Moreover, the Reserve Bank, together with the ACCC, will conduct a further formal review of NPP functionality and access commencing July 2021 at the latest.
Labor Senators’ Response to the Interim Report Labor Senators were supportive of the majority of recommendations and commentary provided in the Interim Report and emphasised that the committee ‘… worked for the most part in a bipartisan and effective way’. While not wishing it to be taken as a dissent from the broader work of the committee, Labor Senators did however produce a report of their own offering some additional comments, some of which were dissenting from the conclusions of the Interim Report.
These were mostly on the basis that Labor Senators wanted to emphasise that ‘… the successful transition into the greater use of digitalised financial products amongst the Australian community will also require the modernisation of consumer protections’.
For example, Labor Senators highlighted that while AFIA’s draft Buy Now Pay Later Code may have adopted many of the suggestions from consumer groups, there are other ‘necessary measures that have been suggested which are missing’. These include suggestions from the Financial Rights Legal Centre and Consumer Action Law Centre (submission 36), such as:
Labor Senators also disagreed with the committee’s position on screen scraping, characterising it as ‘premature’ for the committee to provide their recommendation against a ban which they say ‘… effectively calls for the permanent maintenance of Digital Data Capture (AKA screen scraping), prior to ASIC providing further guidance on any potential consumer liability under the ePayments code’. As such, Labor Senators encouraged ASIC to clarify this issue in its review of the ePayments Code.
In tabling this Interim Report, the committee Chair Senator Bragg noted that ‘The government is full of FinTech supporters - the Treasurer Josh Frydenberg and Australia’s first Financial Technology Minister, Jane Hume’, and expressed his hope that these recommendations will be adopted by the executive government. The extent to which that will happen remains to be seen.
The Final Report of the Select Committee on Financial Technology and Regulatory Technology is due to be delivered in April 2021.