Treasury publishes final report into the ERS

The final report into the Enhanced Regulatory Sandbox (ERS) has been published by Treasury with six recommendations being made.

Minister for financial services Daniel Mulino said the government would consider the recommendations and provide a response later this year.

"The Enhanced Regulatory Sandbox lets eligible businesses test certain financial products and services without first obtaining a full ASIC licence," Mulino said.

"The review looked at the role of regulatory sandboxes in supporting financial innovation in Australia, and specifically the design, operation and effectiveness of the ERS."

The review also considered the broader environment for financial innovation in Australia.

This included examining the factors that support a healthy innovation ecosystem, the Australian regulatory environment and how the ERS can support broader government objectives.

The review made a total of six recommendations including more targeted use, clearer objectives and better alignment with national priorities and emerging technologies.

Mulino also thanked independent reviewer Maha El Dimachki for "devoting her considerable expertise" to the consultation and review process.

In her foreword El Dimachki said embracing new technologies takes "foresight and courage".

"The need for understanding these new technologies and taking action to ensure they develop at pace but in a responsible way is more important than ever and getting it right will reap tremendous benefits," she said.

"Sandboxes play a pivotal role in understanding new technologies, both the opportunities and threats. Given the speed and impact of technology, observing from a distance or by dialogue alone is not enough. Which is why collaborative testing environments such as sandboxes have become more popular than ever around the world.

"However, in isolation, sandboxes cannot be the only tool to advance financial innovation. In this vein, the review considers the broader environment for financial innovation in Australia and assesses the ERS within this context."

The review recommended the government should articulate its overarching ambition for financial innovation by developing a national financial innovation strategy to coordinate efforts and develop a common understanding of objectives across industry, regulators and government.

"The strategy should be forward looking and informed by a thorough assessment of the fintech landscape in Australia, relevant policy and global developments, and be progressed as a near-term priority given the pace of technological change," the review said.

Additionally, it said the financial sector, led by industry bodies and supported by other participants such as accelerators, should take a leading role in ensuring the role of regulation is understood by all market participants.

It also recommended ASIC should continue to operate a general regulatory sandbox, but the ERS should be reformed to broaden its scope and enhance its flexibility.

"This reformed sandbox should have clearly defined objectives, be integrated with the rest of ASIC, and incorporate monitoring and reporting on outcomes for participants. ASIC should review outcomes for participants (including time to licensing) after one year of operation," it said.

"The most effective way to achieve this outcome would be to repeal the current ERS legislation and regulations and evolve the sandbox to a model that leverages ASIC's existing relief powers."

The review also suggested the ERS should be better integrated with ASIC's broader functions, particularly licensing and supervision, to ensure it is aligned with ASIC's overarching regulatory approach, provide a clearer pathway to licensing for participants and improve ASIC's capabilities and knowledge of new technology and innovative business models.

The review recommended as part of its broader regulatory strategy, ASIC should consider using thematic sandboxes within its areas of sole regulatory responsibility to target specific sectors, emerging themes and technologies, to help facilitate innovation and policy development.

Lastly, it recommended a public-private committee should be formed, convened by Treasury and including regulators, industry representatives and independent members.

"The committee would prioritise and decide on the need for specific thematic sandboxes that cut across multiple regulators, agree on the lead and participating agencies and industry participants, review the performance of such sandboxes, monitor industry and technology developments, and support coordination between regulators on financial innovation," it said.