Australia intensifies oversight over fintech lending

Moody’s lauds the move as a welcome development to improve transparency.

The move by regulator Australian Securities and Investments Commission (ASIC) to intensify oversight in the fintech lending business is a welcome development expected to establish more robust regulatory frameworks in place, according to credit rating agency Moody’s. 

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This comes as Prospa Group, a fintech lender that originates small business loans, delayed its planned IPO following queries from the ASIC over what is said to be the terms of its loan products.

Although the intensified scrutiny is expected to produce negative short-term impact in the form of greater uncertainty, Moody's notes the oversight is more than welcome for the industry in the long run.

"In particular, the greater scrutiny will create a stronger regulatory environment which, over time, will result in improved transparency and governance in the sector," said John Paul Truijens, vice president and senior analyst at Moody’s.

A code of conduct is similarly being developed for the sector which Moody’s expects to ensure the sustainability of the country's smalltime fintech lending business.

Banking is no exception to the verticals targeted by startups seeking to disrupt the professional services sector. In fact, smaller banking players are expected to bear the pressure of intense competition as the Australian Prudential Regulatory Authority (ARPA) granted a license to operate to digital-only Volt bank. 

Community banks, building societies, and credit unions remain highly vulnerable to the new entrant as limited technological expertise and low profitability levels curb tech R&D budgets that can possibly match Volt’s capability, said Moody's vice president and senior credit officer Frank Mirenzi.

“Nevertheless, the granting of a banking licence, under the regulator's Restricted Authorised Deposit-taking Institution framework, marks the first steps towards enhanced competition to traditional banks from newer, technologically driven entrants,” Moody’s notes. “This development comes at a time when traditional banks have been required to improve their own technological and digital capabilities to meet customer expectations.”