1. The experience of the Global Financial Crisis (GFC) tells us that innovation in the financial industry is not always a good thing; regulators have become more cautious about ramifications of the innovative financial products and services. At the same time, however, it seems important for banking and financial industry to take advantage of the rise of various disruptive technologies to increase efficiency and welfare. To illustrate the complexity of these issues, Ivy directs her colleagues to the submissions from the industry stakeholders in relation to the expansion of the existing Fintech sandbox.
   1. Ivy first refers to the Australian Bankers Association (ABA)s submission to the government in relation to the expansion of the existing Fintech sandboxthe submission reads in relevant part that:

The ABAs members main concern with the enhanced regulatory sandbox proposed by Treasury is that like the existing ASIC sandbox, it limits collaboration between new players and banks given it is not available to existing Australian financial services (AFS) licence holders. This is at odds with other sandboxes in the UK and Singapore which provide access to existing licence holders to test innovative products and services. The ABA believes that all businesses would benefit from being able to test proposed services within the sandbox, and where necessary, adapt their services at a lower cost. Preventing access to the sandbox for existing AFS licensees could, in some cases, reduce their incentive to does not increase the incentive to innovate and does not increase the efficiency with which innovation can be brought to market, leading to which could lead to slower or less innovation overall and fewer choices for consumersArguably, existing AFS licensees testing new products or services in the sandbox poses less of a risk to consumers than an entity with no licence at allThe UK sandbox is a good example. Despite being open to existing licensees, the majority of participants have still been start-ups but allowing existing licensees to participate has meant led to some innovative partnerships. (emphasis added).

1. Ivy also noticed that CHOICE, a consumer group, made a submission, arguing that the Australian approach actually poses the risks to the consumers. Among others, CHOICE contended that:

There are risks to ASICs existing regulatory sandbox and the proposed expansion in the legislation. Both initiatives allow any business that meets criteria to use the regulatory exemption. In comparison, other sandbox initiatives involve an assessment of whether services are innovative and good for consumers before a regulatory exemption is granted. (emphasis added)

CHOICE points to the updated sandbox approach, noting that:

The legislation allows for ASIC to intervene if services in the sandbox fail to meet license conditions. Specifically, If an entity fails to meet any of the prescribed conditions, ASIC may cancel an entities exemption or apply to the court for an order requiring the entity to comply in a particular way. Given that there will be no proactive examination of sandbox services, this protection is too limiting and inadequate. (emphasis added).

QUESTION :

Having discussed the sandbox approach adopted in Australia and the UK and given the complex interests underlying the regulatory modelsand also the history of GFC, to what extent you agree that the regulatory sandbox is a promising approach that can, on one hand, encourage innovation, while, on the other, protect consumer and market competition? Consider the models adopted by the UK and Australia and discuss your preference and why (step into the shoes of different roles, e.g., existing license holders, start-ups without a license, customers, regulator.