FinTechs belonging to this category offer asset and portfolio management services via an internet platform or software programs and usually manage and dispose of the assets of their customers long or short term according to their specifications without actually holding the property or the possession of those assets. FinTechs, which provide information about and access to overnight or time deposit accounts at national and foreign banks and which execute the transactions to these accounts, also belong to this category. Some FinTechs however only act on request of the customer.
Aside from that some FinTechs offer software or internet solutions enabling users to manage and plan their personal finances on their own by providing graphics, overviews and compilations of their financial data and sometimes indicating financial risks or opportunities, but without actually managing the assets.
Attitude of the country towards modern asset and portfolio management services
The financial services sector in Australia is the most significant contributor to the national economy. The Australian asset and portfolio management market has predominantly focused on primary banking accounts, payments, investment management, capital markets and insurance.
FinTech innovators are implementing new approaches to financial services. This includes the introduction of crowdfunding, mobile payments, digital currencies, peer-to-peer lenders as well as robo-advisers to improve customer experience and offer more competition.
Obligations and requirements to provide asset and portfolio management, or ancillary services described above
Asset and portfolio management services are regulated by the Australian Securities and Investments Commission (ASIC). As an independent Australian Government body, ASIC was established under the Australian Securities and Investments Commission Act 2001 (ASIC Act). ASIC is a founding member of the Global Financial Innovation network (GFIN) and assists foreign financial technology companies to provide services within Australia. This is achieved through ASIC’s Innovation Hub: an initiative run by ASIC focused on supporting Start-ups and Scale-ups entering the Australian financial services market. ASIC implements its initiatives by consulting businesses on regulations, policies and any issues that may arise. This can include issues relating to obtaining an AFSL licence or Australian credit licence, a necessary and mandatory requirement.
It is mandatory for a business to have an AFSL to operate a financial services business in Australia. This requirement is governed under the Corporations Act 2001 (Cth) (CA) and includes any business that makes recommendations or statements about financial products and deals in financial products.
The AFSL application is assessed by ASIC. The costs involved in lodging an AFSL application will be dependent on the size of the business, the type of work (wholesale or retail) and the complexity level. The cost can range from $1,488 to $11,305. ASIC recommends applications be made using their eLicensing system, enabling businesses to tailor their applications individually. In granting an AFSL, ASIC will consider the following: whether the business has the competence to carry out the activities of the financial services business; whether there are sufficient financial resources to support the business proposal; and if all other obligations of an AFS licensee can be met, such as compliance and insurance.
However, a business may be exempt from the requirement to obtain an AFSL. For example, ASIC’s innovation-led approach to asset and portfolio management services has allowed the Australian government to introduce the Enhanced Regulatory Sandbox (ERS). The ERS is an exemption that allows natural persons and businesses to trial innovative financial services or credit activities over a 24-month period without satisfying the requirement to obtain an AFSL. Additionally, businesses working with specific products or services such as credit products (loans, credit cards) or non-cash facilities may also be exempt.
Additional comments regarding the legal situation for asset and portfolio management services or what FinTech’s must be aware of in this business area
The regulatory system in Australia regarding licencing does allow ASIC to grant waivers or relief from the law to businesses. Whilst ASIC has the power to accept exemptions and grant relief from AFSL requirements, it also issues no-action letters to businesses; this ensures ASIC does not commence an action against a business for failing to comply with a requirement.
There are alternatives available to financial technology businesses that do not fall under an exemption or are not prepared to commit to an AFSL. Firstly, the business may have authorisation to operate its services under an existing AFSL holder. This creates a partnership between the business and the AFSL holder where the latter agrees to supervise and monitor the conduct of the former. Secondly, offshore businesses operating under a ‘sufficiently equivalent’ regulatory regime to Australian laws may have authorisation to provide financial services to wholesale clients in Australia. Thirdly, depending on the nature of services and contracts, businesses offering FinTech services to financial institutions may not require an AFSL.
Market size for asset and portfolio management services and biggest companies in this business area
In Australia, the financial services sector is known as the most significant contributor to the national economy. As at March 2021, Australia’s asset and portfolio management industry had $2,464.5 billion of funds under management (Australian Bureau of Statistics, Managed Funds, Australia, Mar 2021, cat. no. 5655 (3 June 2021). In 2019, the top fund managers were State Street Global Advisors, Vanguard Investments, Colonial First State, BT Financial Group and MLC Investments.
Over half of investors rely on personalised planning services whilst the other half prefer advice on non-investment financial services such as insurance or banking. The COVID-19 pandemic has caused significant shifts in the market, with a move towards digital transformation, stronger competition, rising regulatory obligations and unpredictability in the economy. These changes have motivated asset management firms to reconsider their strategies, placing more emphasis on addressing investor views and needs whilst streamlining services using digital technology.
Additional comments regarding the economic situation for asset and portfolio management services or what FinTech’s must be aware of in this business area
The marketplace is changing, and this is impacting the behaviours, attitudes, and expectations of investors. Growing trends suggest investors are becoming more mindful; considering digital interactions; demanding greater integrity and transparency; and an increased willingness to change providers if their expectations are not being met. The shift towards investing with purpose is increasing and is forcing asset management firms to review their approaches. FinTech businesses with a social conscious or purpose and maintaining a client-focused approach will create opportunities to connect with investors, understand their needs and deliver direct services.