Some Fintech businesses may be unwittingly providing financial services without an Australian Financial Services Licence (AFSL) or Australian Credit Licence (ACL), putting themselves in breach of the law and setting themselves up as an ASIC target early on their growth path, according to The Fold Legal (The Fold).
Managing director of The Fold, Claire Wivell Plater, says start-ups dabbling on the fringes of financial services should carefully investigate whether what they are doing requires them to have an AFSL or ACL.
“There is a lot of focus on Fintech businesses at the moment. We are concerned that some of these wonderful, innovative companies starting out may be setting themselves up with a target on their backs,” she says. “These businesses need to get expert advice at a very early stage because they need to be either building their business in a way that doesn’t provide a financial service, putting boundaries in place to ensure they are not crossing over into providing a financial service or biting the bullet and actually getting a licence.
Either way, they need detailed knowledge of what type of activity is considered a financial credit service. This is not always straightforward.
Ms Wivell Plater says Fintech businesses may think that simply providing information or analysis means they don’t need an AFSL but care needs to be taken that material does not turn into financial product advice. “It’s complex,” she says. “If, for example, a website contains a recommendation about or even just compares financial products, that’s likely to be a financial service. Any information that is an opinion that could influence a person’s decision to purchase the product can be a problem if the business does not have its licensing in order.”
The test for whether something is a credit service is different to financial services, Ms Wivell Plater says. So Fintech businesses need to understand the difference. As an example, general advice about a financial product is a financial service, but the same type of recommendation about a credit product most probably won’t be.
“Reviews are also flavour of the month with sites aiming to be the ‘TripAdviser’ of financial or credit services starting to emerge. This is also dangerous territory,” she says. “Unlike travel review sites, which are largely unregulated, financial or credit service review sites may be providing a financial or credit service, especially if they monetise their sites – which means they’ll need a licence.”
Ms Wivell Plater says ASIC is constantly on the look-out for businesses that are providing credit or financial services without an AFSL. If businesses are not switched on early it could hinder their ability to apply for a licence later on. “If you’re providing a financial or credit service without a licence, then go to ASIC and apply, ASIC will rightly ask why you do not already have one. It is a much larger hurdle to overcome. If you haven’t properly checked the requirements and your obligations, then why should ASIC trust you are going to comply going forward?”
Ms Wivell Plater says Fintech businesses should also ensure that the person they seek advice from has a deep understanding of the financial services and credit regulatory requirements. “You need to feel confident that you haven’t missed anything,” she says. “Look for someone who is working with other entrepreneurs; they’re more likely to be able to suggest some innovative ways to work within the requirements.”
