The Impact of Australia’s Regulatory Environment on FinTech Innovation and Growth

Home to one of the world’s most dynamic FinTech industries, Australia has witnessed dramatic growth throughout the sector in recent years due to spikes in investor funding and consumer digital adoption. Within the last five years, the number of Australian FinTechs has doubled, with 800 local FinTech startups currently operating across multiple verticals, from digital payments and wealth management to blockchain services. 

According to the 2021 EY Fintech Australian Census, the sector’s speed to commercialization and the number of deals and Initial Public Offerings throughout the COVID-19 pandemic has given investors greater confidence in returns. In light of this, FinTech was hailed “the standout hero” of the Australian economy during the pandemic, as the sector generated the jobs and investment the country needed for a swift economic recovery.

Support from public bodies, including investors and regulators, has been crucial to the sector’s growth trajectory. From the Banking Royal Commission opening the door to innovation in 2019 to regulatory sandboxes allowing license-free testing for up to two years, Australia’s pro-innovation and pro-competition outlook tees up further legislative and regulatory support for the FinTech industry.   

To ensure the integrity of this outlook, Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) rules are currently undergoing reform. The Australian Transactions Report and Analysis Centre (AUSTRAC), Australia’s AML/CTF regulator, supports the overhaul, citing the need to streamline the regime to support FinTech and wider innovation. 

The reforms include ending the unwarranted de-banking of FinTechs by legacy financial services providers on AML/CTF grounds and improving AUSTRAC’s online suspicious activity reporting platform. However, daily challenges for FinTechs remain, particularly regarding the growing threat of financial crime. The CEO of AUSTRAC, Nicole Rose, referenced this in a May 2022 speech warning about the potential for online finance to be abused by criminals, especially digital assets.

The financial crime typologies encountered by FinTechs, such as digital asset money laundering, identity theft, and account takeover, require firms to move away from the post-analysis of data and instead be proactive about AML. Having a compliance mindset from the outset is critical to ensuring the sustainability of new FinTechs in Australia.

While this Guide to AML for Australian FinTechs affirms there is no single “right answer” to building an AML compliance program, FinTechs must adopt a risk-based approach to account for their risk appetite. This includes demonstrating to AUSTRAC their process for recognizing the existence of risk and implementing control strategies for mitigating and monitoring the risks they identify. 

In addition to providing suggestions on how to implement a risk-based approach, this guide will arm FinTechs with:

• An outline of the AML/CTF regime in Australia
• The core compliance responsibilities that arise from it
• A set of principles and actions that can help shape a flexible framework