Fintech inquiry warns against 'one size fits all' regulation

A Senate inquiry says it should be up to Parliament, not regulators, to set policy for new financial products such as buy now, pay later (BNPL) services, which don't fit easily into existing policy frameworks

Amid ongoing investor debate about whether BNPL market darlings such as Afterpay and Zip Co will face tougher regulation, the inquiry chaired by NSW Liberal Senator Andrew Bragg on Wednesday said it was inappropriate to "force each innovation into a one size fits all approach."

The committee was chaired by Liberal Senator Andrew Bragg.Credit: Peter Braig

It comes as the Reserve Bank is considering whether outfits like Afterpay should face restrictions on their ability to ban merchants from including a surcharge, a move that could crimp their profits.

Consumer groups have called for tighter checks on BNPL providers, and the Australian Securities and Investments Commission (ASIC) has also previously considered regulating Afterpay as a form of credit.

In an interim report tabled late on Wednesday, the Senate committee on Financial Technology and Regulatory Technology backed the BNPL sector's code of practice, saying self-regulation helped to protect innovation. It said such self-regulation could later be backed up with a policy from parliament.

"Although it is appropriate that ASIC and the RBA undertake reviews into various regulatory issues, the policy in this space must be set by the Parliament," the report said.

"It is therefore appropriate that the regulatory landscape for innovative products like BNPL be set out by a clear policy statement from the elected Parliament. Because innovation like BNPL often occurs on the fringes of regulation, it is inappropriate to force each innovation into a one size fits all approach."

Senator Bragg said in a speech tabling the report that the "vast majority" of its recommendations had bipartisan support.

The committee's support for self-regulation was welcomed by market darlings Afterpay and Zip, which have both highlighted the risk that regulatory uncertainty could hold back their growth.

Zip co-founder and chief operating officer Peter Gray said: "The committee is absolutely spot-on in its recognition that innovation is too important to be smothered with a one-size-fits-all approach to regulation"'

Afterpay chief executive Anthony Eisen also welcomed the report's support for self-regulation, saying the BNPL code of conduct could be a basis for more formal regulation in the future.

"What this report recognises is that customers are responding positively to innovation that delivers better outcomes for them, and that our regulatory frameworks need to embrace and foster this if Australia is to compete on an international level," Mr Eisen said.