FinTech Startup – Have You Considered Everything?

Allied Legal’s commercial and startup lawyers are regularly consulted by founders involved with FinTech startups.  Given the complexities associated with operating in the financial services industry, which includes regulatory complexities, FinTech startups usually have more to consider than other ventures.

Complex Legal Regime

Unsurprisingly, the finance sector is one of the most heavily regulated sectors in Australia. This means FinTech startups need to adhere to a range of regulations. Failing to do so could see businesses facing fines and other penalties.

Broadly, startups are expected to follow the same regulations as larger companies. So, it’s important for those starting up in the FinTech sector to seek professional guidance. 

In Australia, the laws which tend to be most relevant to businesses operating in the FinTech sector are:

  • Australia has a single national regime for the regulation of consumer credit and a national credit code implemented by the National Consumer Credit Protection Act. FinTech businesses engaged in peer-to-peer style lending initiatives need to be mindful of the requirements of the Act if their products and services involve the provision of credit or the making of credit contracts where an associated fee is charged.
  • Banking activities are regulated in Australia and the Banking Act prohibits a corporation from carrying on any banking business in Australia unless specific conditions are met.  FinTech ventures focused on providing a strategic market alternative for services traditionally performed by established banks and financial institutions need to keep this in mind.
  • Persons providing financial product advice are required to be licensed for the conduct of a financial services business. Activities that may be considered to constitute conducting a financial services business include giving recommendations about which financial products to purchase, trading in shares on behalf of a client, and quoting prices for the trading of financial products. Obtaining an Australian Financial Services Licence (AFSL) authorises its holder and its representatives to provide financial services to clients. FinTech ventures whose activities may involve conducting a financial services business should consider the applicability of AFSL licensing requirements.  Having said this, the Australian Government has introduced the enhanced regulatory sandbox (ERS). The sandbox allows natural persons and businesses to test certain innovative financial services or credit activities without first obtaining an AFSL or credit licence. The ERS aims to facilitate financial innovation in Australia from 1 September 2020.  Further information about the ERS and ASIC’s Innovation Hub can be found here:
  • The national Competition and Consumer Act is the principal item of legislation governing trade practices and consumer protection. It addresses matters such as anti-competitive practices, the force of industry codes of conduct, enforcement and remedies, processes for authorisations and notifications of conduct, price-monitoring and telecommunications-specific anti-competitive conduct.
  • While there is no general common-law right to personal privacy in Australia, the Privacy Act regulates the collection, use and handling of information that is considered personal information.

The Cap Table

Given the higher than usual need for funding associated with FinTech startups, many FinTechs have relatively complex shareholder structures, deriving from early rounds of fundraising (via friends and family, high net worth individuals, angel investors etc.). Such structures can often have multiple share classes. Accordingly, it is critical that FinTech’s maintain and keep updated their shareholders register to keep track of the ownership structure.  Further, it is very important that a shareholders agreement be put in place which clearly sets out rights obligations of all shareholders.  The FinTech should also consider the inclusion of appropriate drag rights or squeeze out mechanisms that may be needed in the future to allow for efficient M&A activity in the future.

Intellectual Property

Although many FinTechs need to operate in a lean and efficient manner if they are to survive their earlier years, future investment and/or sale of the business can be undermined during this period if key legal rights are not put on a sound footing. IP, data and software are central to the value of many FinTech businesses. Investors will focus on whether care has been taken to protect IP rights, secure future access to business-critical data, and ensure that use of third-party and open source code does not undermine the value of the company’s software.

Data Privacy

Data privacy and protection is usually a critical aspect of the due diligence undertaken by investors looking at a FinTech play. By way of example, consideration will be given to whether: 

  • There have been any historical data protection breaches by the FinTech.
  • Appropriate consents have been obtained to process the data (including the potential application of the GDPR regime).
  • In the absence of consent, alternative lawful reasons apply under the relevant data protection regime (e.g. GDPR) to justify the processing of data. 

Investors will also want peace of mind that the FinTech’s systems benefit from appropriate protection against cybercrime and the regulatory and reputational impact that may flow from any breach. 

Need Help?  Contact Us 

The financial services industry is complex and we cannot stress enough that competent legal advice is critical to ensure the success of your FinTech startup.  If you want to know more about how we can help, give us a call on 03 8691 3111 or send us an email at

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