Chapter 5

Other matters

The committee took evidence during this phase of the inquiry on several other issues. This chapter covers evidence received in relation to: the policy environment for neobanks in Australia; and options to replace the Offshore Banking Unit (OBU).

Policy environment for neobanks

The committee was interested to explore whether recent changes in the neobank sector, including as the closure of Xinja and the acquisition of 86 400 by NAB, have resulted in any significant effects on competition or signalled the need for changes in the regulatory landscape.

Increasing competition

Revolut has announced its intention to apply for an Australian banking licence. It expressed the view that 'digital based neobanks have demonstrated the potential for increasing competition in the banking sector', citing that:
digital banks have significantly improved the ability for customers to apply for new accounts which in turn drives competition via account switching.1
However, Revolut pointed out that there 'are still very high barriers to entry in the banking sector and equally high barriers in building sustainable and profitable banking businesses. The difficulties of entering the local market primarily consist of regulatory hurdles, capital requirements, achieving operational readiness, customer acquisition costs and the friction associated with account switching'.2 While noting that 'high barriers should be expected in a sector tasked with protecting consumer's money', Revolut listed elements of the regulatory framework which are particularly burdensome which relate to:
the current regulatory framework for payment services providers;
direct integration with Australian payment rails;
information asymmetry; and
international recognition.3
Revolut also submitted that the licence process to full ADI status is lengthy 'which means that any applicant must have access to significant sources of working capital to operation for this period of time'.4 Revolut noted that these hurdles remain 'despite policy intervention that has improved or is improving barriers to entry'.5
The Australian Finance Industry Association (AFIA) submitted that in relation to neobanks:6
Policy settings have limited opportunities for firms to obtain ADI status in Australia. There have been a small number of successful new entrants, such as ‘small business’ bank, Judo Bank. However, overall, the number and market penetration of digital banks is much lower than overseas, in particular the United Kingdom. In Australia, the four major banks make up around 80 per cent market share.7
Focusing on opportunities within the digital banking sector and ways to improve the regulatory environment, AFIA suggested:
Leveraging the Australian Prudential Regulation Authority (APRA)’s upcoming evolution of its licencing framework to promote a pro-competition agenda.
Providing more clarity and transparency in the ADI licensing process.
Providing more clarity and enhancing the Consumer Data Right (CDR) framework and Open Banking regime.
Addressing immediate and urgent skills shortages through targeted immigration initiatives.
Ensuring a stable regulatory environment.8
Judo Bank, a specialist SME bank, acknowledged that much has been done in recent years to encourage greater competition but submitted that more can be done. It highlighted three issues in relation to the banking market that they believe are important from a public policy perspective:
The importance of competition to drive choice, innovation and better customer outcomes. The banking market today lacks meaningful competition in key sectors.
The need for a public policy environment that is pro-competition. The prevailing policy environment could do more to promote competition.
A recognition that not all new entrants into a market will succeed, some will fail, but that should be seen as an opportunity to learn rather than an excuse to constrain new entrants.9
Judo Bank added that new entrants should be able to demonstrate the following 'must haves':
Access to material levels of capital for the first five years of operation. At Judo, we said to our investors at the outset that we would need ~$1.5bn of equity capital over our first five years.
A clear and sustainable comparative advantage that meets a market need, and that comparative advantage should be anchored by a strong sense of Purpose: and
A strong management team that understands the businesses, the many risks that banking entails, with a demonstrable track record in running a bank.10
Mr Joseph, Healy, Chief Executive Officer, Judo Bank elaborated on these points at a hearing:
In entering the banking market, we believe that there are three must-haves to be successful. You must have access to sufficient capital to sustain the business over a five-year horizon. It's not sufficient to come in and raise a small amount of capital and then come back looking for more capital. You've got to be quite clear on how much capital you need over the medium to long term. So we would be clear with our investors that we needed $1½ billion over the first five years of our business and that they should know that before investing. So that's the first must-have. The second must-have is: you must have a very clear comparative advantage. What is the problem that you're seeking to solve that the market can't solve itself already? So what is the nature of that comparative advantage? We said we felt that the SME economy was being badly served by the banks and it was an opportunity to build a business that addressed that market failure. The third must-have is experienced management, and I don't just mean one or two individuals but experience in depth—the understanding of how to build and how to run banks. I think, when you look at the failures not just here but in other markets around the world, there has been a weakness in at least one of those three must-haves. You can't sustain a business model in the banking sector without being strong in all three. The weakest link will bring you down.11
In relation to competition, Mr Healy offered his view:
As I mentioned earlier, in the context of the banking and financial services sector, this economy needs a lot more competition. As I understand it, we do not have a regulatory framework that is pro-competition. We have a regulator, in the form of APRA, that is concerned with the stability of the banking system, which is understandable. We have a regulator, in the form of ASIC, that is concerned with the integrity of the way the markets operate. We have a regulator, in the form of the ACCC, that wants to prevent a reduction in competition. But that's different from being pro-competition. One of the weaknesses in our regulatory architecture today is that we lack a pro-competition policy framework.
…I think it's important to think about the future of competition. When you get a large incumbent buying a small new startup—I personally do not believe it is in the best interests of the market for that to happen. I think it's in the best interests of the market that these new startups, these fintechs, are allowed to flourish. The reality is that access to capital will quite often force smaller players into the arms of bigger players. But I personally feel that that does nothing to promote competition in the future. So my strong bias would be to allow new entrants, new innovations, to flourish and not have them captured by the stifling bureaucracy that you will find inside large incumbents. I've been in banking for over 35 years here and overseas. I can't think of any example—but I'm sure there may be one or two—where a small, agile innovator that is suddenly acquired by a large incumbent goes on to prosper. What happens is that they get suffocated, stifled and, ultimately, killed by bureaucracy. Specifically, in the context of the financial services sector, I think there is a real opportunity to have a very pro-competition approach that stops smaller players, smaller startup innovators, from being subject to acquisition by large incumbents.12

Importance of capital

FinTech Australia supports the approval of new banks 'to increase competition and sustainability of the banking sector'. It also pointed out that in order for this to occur 'it is critical that neobanks are able to raise sufficient capital', suggesting:
One solution may be to increase access to capital to neobanks. Currently, there is a lack of incentives for early-stage investors. As discussed…in respect of venture capital, greater tax incentives for early-stage investment are likely to promote access to capital for neobanks. In particular, current policy prohibits Venture Capital Limited Partnerships (“VCLPs”) and ESVCLPs from investing in ADIs. Furthermore, ADIs are also excluded from a range of investor incentives that are made available to foreign investors (such as the SIV scheme). These measures create barriers to access capital which is essential for a bank to operate.13
FinTech Australia recommended promoting access to capital for neobanks by removing restrictions surrounding venture capital investment in ADIs.14
The importance of capital for success was also highlighted by Financial Inclusion by Design.15

ACCC view on competition

Noting recent changes in the neobank sector with Xinja ceasing its retail banking operations and 86 400 acquired by NAB, the ACCC did not see these departures 'as indicative of competition substantially lessening, nor detracting from other signs of increasing competition we are seeing in the banking sector'. For example:
the exits do not appear to have deterred new entrants, with APRA Chair, Wayne Byres observing in March 2021 that APRA is considering licensing applications from upwards of a dozen ADIs. In addition, Judo (a bank focused on SME lending that was licenced around the same time as Xinja as 86 400) has built a loan book of over $2 billion and has reportedly raised over $500 million in equity to fund operations and growth.16
The ACCC added that it would 'continue to closely scrutinise any proposed acquisitions of emerging competitors or current challengers, particularly acquisitions by major banks'.17
APRA noted that 'there is a healthy pipeline for new applications and continued demand for an updated licensing framework to facilitate the entry of new competitors'.18


Dr Dimitrios Salampasis pointed out that:
Compared to other countries, neobanks in Australia operate under a complex regulatory framework. Major regulatory bodies include the Treasury, APRA, ASIC, ACCC, AUSTRAC, and RBA, dictating legislative vehicles, such as, the Banking Act, prudential standards, consumer data and privacy, registration, and disclosure obligations…19
FinTech Australia pointed out:
the current regulatory landscape is confusing for new banking entrants. [APRA] has often created additional obligations, or changed obligations, in relation to the requirements for prospective ADIs to gain ADI status. As a result, members consider the process of obtaining an ADI to be too opaque.20
FinTech Australia recommended providing further clarity regarding the process to become an ADI.21
The Customer Owned Banking Association (COBA) is the industry association for Australia's customer owned banking institutions (mutual banks, credit unions and building societies). It pointed out that 'Neobanks and COBA members face the same regulatory and operating environment'. COBA argued that the:
increasing diversion of scarce resources away from customer service and innovation to meet new compliance obligations hits challenger banks hardest and gifts a competitive advantage to major banks. The ultimate losers from this entrenched trend are all banking customers who need a vibrant, dynamic and innovative retail banking market.22
COBA further explained:
A decade ago, financial services regulation, while complex, did not have the same pace and volume of regulatory change. While banking was subject to increasing consumer and prudential regulation, since then a global financial crisis, various inquiries, a Royal Commission, exponential technological change and a global pandemic have created wave after wave of regulatory change.23
COBA submitted that the 'solution to addressing the regulatory compliance burden is ensuring there is better regulation and better regulatory policymaking'. It argued for 'consistent and rigorous application of Regulation Impact Statement (RIS) processes informed by principles such as COBA's [eight] Principles of Proportionate Regulation'.24
Wise, noted elements of the regulatory framework for neobanks which overlap with the service provided by Wise. It suggested that 'there is a need to expedite the changes to the PPF [Purchased Payment Facilities] Framework along the lines explored in the Council of Financial Regulators review' of the Regulation of Stored-value Facilities in Australia.25 Wise continued:
Specifically changes in the regulation of Stored Value Facilities and other payments products should be graduated and relate to the risk for consumers rather than be set at arbitrary levels.26
Wise welcomed the announcement by the Minister that a new framework will be developed by ASIC, APRA and Treasury and that there will be consultation with industry.27
AFIA argued that policy settings 'have limited opportunities for firms to obtain ADI status in Australia' and 'the number and market penetration of digital banks is much lower than overseas, in particular the United Kingdom'. AFIA recommended:
1. Leveraging APRA’s upcoming evolution of its licencing framework to promote a pro-competition agenda.
2. Providing more clarity and transparency in the ADI licensing process.
3. Providing more clarity and enhancing the Consumer Data Right (CDR) framework and Open Banking regime.
4. Addressing immediate and urgent skills shortages through targeted immigration initiatives.
5. Ensuring a stable regulatory environment.28
The Australian Banking Association (ABA) noted that in March 2021, 'APRA published an Information Paper outlining their revised approach for new entrants, providing guidance on a pathway to sustainability':
APRA recognised that new Authorised deposit-taking institutions (ADIs) have unique challenges and their risk profiles differ when compared to established ADIs. APRA’s approach to new entrant ADIs seeks to strike an appropriate balance between supporting entities to enter and thrive in the banking sector, while ensuring financial system stability and protecting the interests of depositors.29
To encourage a variety of potential applicants, the ABA highlighted the two pathways available to become an ADI: the direct and restricted pathways. Elaborating on the restricted pathway:
The restricted pathway facilitates entry into the banking sector for a wider variety of applicants. The restricted pathway is suitable for applicants that do not have the resources and capabilities to establish an ADI and need time to develop these. This pathway allows applicants to conduct limited banking business as a ‘Restricted ADI’ before meeting the requirements of the full prudential framework. APRA’s approach is to assist applicants in seeking the investment required to operationalise their business, test their business model, progress their compliance with the prudential framework and ultimately their application for an ADI licence.
The restricted ADI licence allows an entity time to develop resources and capabilities and to conduct limited, low risk or traditional banking business during its start-up phase. The ABA considers the APRA approach best-practice and the paths efficiently facilitate the entrance of new players into the market.30
The RBA noted that it has 'taken a number of actions that are supportive of access to the payments system for new entrants, including neobanks'. These include: imposing access regimes on the Visa and Mastercard credit card schemes, to give access to a wider range of entities in the early 2000s which was further expanded in 2014; supporting competition in banking and payment services through its policy on access to Exchange Settlement Accounts (ESA); and in 2018, following liberalisation of the use of the term 'bank' and the introduction of APRA's restricted ADI regime, the RBA 'removed a requirement for all banks to hold an ESA for use in a contingency, even if they used an agent to settle their transaction under normal circumstances' with this change 'intended to reduce the cost and regulatory complexity for neobanks and other smaller institutions that chose to become banks, providing them the option to apply for an ESA at their own discretion.'31

AML/CTF regulation

Home Affairs and AUSTRAC reported that the AML/CTF Act 'regulates a wide range of financial services…including services typically provided by neobanks, such as opening accounts and accepting or transferring money between accounts'. However, the AML/CTF Act 'only applies to 'designated services' that satisfy the geographical link test under subsection 6(6) of the Act, such as 'authorised deposit-taking institutions' (ADIs). It noted that:
The geographical link test requires that for an entity that provides a designated service to be regulated under the AML/CTF Act it must be domiciled in Australia. This has posed challenges for the effective regulation of neobanks as they are often based offshore, and their digital nature means they do not require a physical office in Australia in order to provide their services here.32
Home Affairs and AUSTRAC advised that:
To ensure neobanks are appropriately regulated, [APRA] can designate neobanks as ADIs under the Banking Act 1959. This brings these neobanks on-shore, satisfying the geographical link test, and ensuring that they are regulated as ADIs under the AML/CTF Act.
Authorised deposit-taking institutions must:
enrol with AUSTRAC
adopt and maintain an AML/CTF program to identify, mitigate and manage the ML/TF risks they may face
collect information and verify the identities of their customers and undertake ongoing customer due diligence
report suspicious matters, transactions involving physical currency that exceed $10,000 or more and international funds transfer instructions to AUSTRAC, and
keep records relating to customer identification, transactions, and their AML/CTF program and its adoption.33

APRA's views

APRA provided the committee with information about its revised ADI licensing framework, following the introduction in 2018 of a restricted ADI licensing framework which provides an alternative pathway to a full licence for new banking entrants:
Earlier in 2021, APRA commenced consultation on an updated approach to licensing and supervising new ADIs. The revised approach follows a review of APRA’s ADI licensing regime which found there should be a greater focus on longer term sustainability, rather than the short-term ambition of receiving a licence. The review also took into account matters such as those raised in the Committee’s third issues paper, namely, the closure of Xinja and the transfer of 86 400.34
APRA advised that under the revised approach:
Restricted ADIs would be required to achieve a limited launch of both an income generating asset product and a deposit product before being granted an ADI licence;
there is increased clarity around capital requirements at different stages for new entrants, aimed at reducing volatility in capital levels and facilitating a transition to the methodology for established ADIs over time; and
new entrants would be expected to have more advanced planning for a potential exit, including an option to return deposits.35
APRA noted that it:
expects these changes to enhance the chances of longer-term sustainability of new entrants in the banking sector. In doing so, this would increase their ability to assert competitive pressure on incumbents, both now and into the future.36
When asked about the updated guidance from APRA, Mr Joseph, Healy, Chief Executive Officer, Judo Bank was of the view that 'the new guidelines are appropriate'. He explained:
It's important that businesses aspiring to become banks are capitalised properly, have a very clear business strategy and have competent people managing those businesses so that the chances of success are strengthened. The risk, and the issue which APRA is guarding against, is when there's weakness in any of the three things that I just mentioned—that new entrants are undercapitalised or don't have access to the capital they need to grow, that they don't have a clear competitive advantage with products that are generally going to make them a profit and that they may not have the great strength in management expertise to launch, develop and grow a bank successfully.
I feel that there's an element of learning from past experience, but that the general principle of increased competition is something that we have to see as a very important principle.37

Options to replace the Offshore Banking Unit

On 12 March 2021, the government announced it would consult with industry and introduce legislation into Parliament to reform the Offshore Banking Unit (OBU) with the current regime to be abolished from the end of the 2022-23 income year.38
On 17 March 2021, the government introduced the Treasury Laws Amendment (2021 Measures No 2) Bill 2021 which has the effect of removing the concessional tax treatment for offshore banking units.39 The ABA indicated that it understands:
the Government intends to consult with industry on alternative approaches to the now grandfathered offshore banking unit regime to support the industry and ensure activity remains in Australia.40
The Financial Services Council (FSC) noted that:
The OBU regime is used by a number of local fund managers and life insurers to ensure that Australia is globally competitive in these industries. The OBU regime broadly permits an Australian funds manager to pay a lower rate of tax on activities that relate to offshore managed funds (and similarly for life insurers).41
Mr Robert, Colquhoun, Director, Policy, Australian Financial Markets Association (AFMA), provided context by speaking about the types of jobs created by an OBU:
The variety of activities is quite broad, but one of the cohorts of OBUs that I want to bring to the committee's attention, particularly given the fintech focus of this committee, is that we have a number of members who are trading global markets from Australia and they are hiring hundreds of people who are very bright—the best of the breed in terms of talent. They are very sharp people who are trading markets in a way which results in them being quite profitable. They are highly paid, highly skilled people. Absent the pandemic, they would be looking to scale the globe for the best and brightest and bring them to Australia, and probably still are. From my perspective and AFMA's perspective these are mature fintechs…42
The FSC argued:
The abolition of the OBU regime will exacerbate the tax-related issues being faced by the funds management industry from the adverse policy climate facing funds managers, particularly from the proposed tightening of the AMIT [Attribution Managed Investment Trusts] penalty regime and the proposed removal of the Capital Gains Tax (CGT) discount at fund level...43
The FSC suggested that:
All of these changes put together will cause substantial cost and disruption to the industry for no clear benefit. As the Government is considering changes to other tax policies to offset the problems caused by an adverse change relating to OBUs, then we strongly suggest abandoning the proposed changes to AMIT penalties…and the CGT discount at fund level… This will ensure the Government is not placing additional burdens onto the industry, in addition to the burden occurring from the removal of the OBU regime.44
AFMA noted that the reform of the OBU is being undertaken in response to concerns raised by the OECD's Forum on Harmful Tax Practices. AFMA noted that this OECD forum articulates five key factors that will be relevant to the assessment as to whether a concessional taxation regime is viewed as a harmful tax practice:
the regime imposes no or low effective tax rates on income from geographically mobile financial and other service activities;
the regime is ring-fenced from the domestic economy;
the regime lacks transparency;
there is no effective exchange of information with respect to the regime; and
the regime fails to require substantial activities.45
AFMA stated that in relation to the OBU regime, the only two factors identified by the OECD that are of potential relevance are the first two; that is, that the regime imposes no or low effective tax rate on geographically mobile income and that the regime is ring-fenced from the domestic economy.46
AFMA expressed its view that:
the framework through which the OECD assesses a concessional taxation regime as being a potentially harmful tax practice is flawed and the OBU regime does not distort the allocation of capital or investment to Australia but merely allows Australia to leverage its other non-tax benefits to compete with other regional jurisdictions'.47
Nevertheless, AFMA argued that when considering options to replace the OBU regime 'it is necessary to ensure that any options will withstand the scrutiny of the OECD to the extent that the OECD Forum on Harmful Tax Practices will remain operative…'. AFMA noted recent developments in the international tax landscape that would inform the new OBU regime and the work of the OECD Forum on Harmful Tax Practice. It pointed out that:
On 1 July 2021, the OECD announced that 130 jurisdictions had signed up to the two-pillar solution to address tax challenges arising from the digitisation of the global economy. Of particular importance, Pillar Two of the solution seeks to ensure that companies with associate-inclusive turnover of EUR 750 million or more have a taxable income taxed at an effective tax rate of 15% or higher.48
The 'two pillar' agreement was finalised on 8 October 2021, with 136 countries and jurisdictions representing more than 90 per cent of global GDP signing up to the agreement which includes a minimum 15 per cent tax rate for multinational enterprises from 2023.49
AFMA pointed out that in addressing the concerns articulated by the OECD Forum on Harmful Tax Practices, AFMA's view is that 'any regime with a tax rate of 15% or higher could not be considered to meet the "low or no tax" criterion'.50

Proposals from submitters to replace the OBU

AFMA noted that it has formulated the 'Global Markets Incentive (GMI) Regime 'which will allow Australia's tax settings as they apply to financial centre business to be largely maintained while ameliorating any concerns of the OECD Forum identified through its review of the OBU regime'.51
AFMA told the committee that the proposed GMI regime would 'allow Australia’s tax settings as they apply to financial centre business to be largely maintained while ameliorating any concerns of the OECD Forum identified through its review of the OBU regime'. It added:
The goal of the GMI is to ensure that Australian-based financial market participants are able to equitably compete in international markets. Current financial markets operate on an international basis and enable participants to access a range of services and products both in their local market and from foreign providers. The Australian tax system should not adversely impact an Australian-based entity’s competitiveness in these markets.52
AFMA offered the following explanation of the principal features of the proposed GMI regime:
A tax rate of 15% to apply to eligible GMI activities;
The nature of activities to be included in the GMI should also take into account whether the activity is one which Australia wishes to incentivise as part of its drive to be a technology and financial centre and how impactful the removal of the non-resident ring-fencing would be to existing domestic tax revenue.
Certain OBU trading activities are currently not ring-fenced in the OBU rules (or the ringfence has no practical effect as a result of non-tax reasons). The inclusion of these activities in the GMI should not result in significant tax revenue consequences.
GMI activities to be determined with reference to the existing suite of eligible OB-activities;
The definition of an eligible counterparty can be defined to exclude individuals and/or small business entities under section 328 of the [Income Tax Assessment Act]. This will ensure that the GMI regime only applies to financial market participants of sufficient scale and does not inadvertently create new domestic low tax markets for non-AUD financial products and services, thereby mitigating material adverse Federal tax revenue impacts.
A restriction based on the nature of the counterparty (i.e. individual or small business) should not cause ring-fencing concerns as the restrictions would apply to both residents and non-residents.
GMI activities able to be conducted with any eligible counterparty (both domestic and international), thereby removing the ring-fencing concern that was expressed in relation to the OBU regime;
Given that the focus of the GMI regime is to allow Australia to compete in relation to transactions that would otherwise be conducted with international competitors, a prohibition against GMI activities being denominated in AUD.53
Providing an update at a hearing, Mr Colquhoun reported that Treasury has started the consultation process and they have engaged with AFMA. He added:
I think where we are now is a point of inflection where the work thus far has been to repeal the regime in a manner which both satisfies the OECD concerns, gets us off the grade list from the European Union perspective to avoid the concerns with the securitisation industry, and then grandfathers the regime with appropriate time to enable us to look at replacement rate…one the hardest aspects of the work engaging with the OECD regarding their review was to get clarity on what the low or no tax criterion was. Was 15 per cent acceptable? Was 20 per cent acceptable? Was anything below the headline tax rate going to be a problem? I think the step change is the announcement of the pillar 2 rate. I think that's something that we can build on.54
Mr Michael, Potter, Policy Director, Economics and Tax, FSC indicated that they had the same interaction with Treasury.55
Mr Colquhoun, AFMA, provided suggestions on how to move forward by providing some background and context:
The OBU regime was designed back in 1986—that was its first generation—and it was revamped in 1992. The policy basis behind it was to allow Australia to intermediate transactions that otherwise wouldn't have a nexus with Australia. So you are dealing with offshore counterparties and predominantly offshore assets. I don't think that needs to change. We don't want to concessionally tax business that will be here by virtue of being domestic in nature. So I think the framework for the OBU in terms of primarily allowing Australian companies compete in global markets—hence the global markets initiative—is still the right one. We have an issue with ring fencing from the OECD perspective. We think we can deal with that by limiting it to institutional businesses and counterparties—no small business and no individuals—and we think we can make it work in terms of taking out AUD transactions as well, because they will have a general nexus to Australia. Our members say 15 per cent is sufficiently competitive to keep business here and to attract business from other jurisdictions.56
Mr Potter supported AFMA's position indicating:
A rate of 15 per cent, while it is obviously higher than 10 per cent, would still be of substantial benefit. The proposal they have put forward, a GMI, sounds like a worthwhile one to explore. In that context, we are obviously disappointed that the OBU regime was removed but we understand the reasons for it being removed.57
The Australia Finance & Technology Centre Advisory Group (AFTCAG) provided information to the committee setting out 'options to reform the OBU that would maintain and enhance Australia's global position'. AFTCAG highlighted that the OBU concessional tax rate could be aligned with the OECD's Pillar 2 proposal, which is intended to be met on a blended company tax rate basis. It explained further:
We note a blended Australian income tax rate for many taxpayers in the funds management sector would be a combination of a revised 15% OBU regime rate and their normal 25% tax rate for base rate entities (broadly companies with aggregated turnover less than $50 million) in respect of other income, to achieve a blended rate in excess of the Pillar 2 minimum rate of 15%.58
AFTCAG stated that on this basis, the reforms would then only need to address issues with "ring fencing". AFTCAG proposed two alternative options to address these issues:
extending the OBU regime to similar Australian arrangements, with an Australian income cap equal to eligible foreign OB income (AFTCAG's preferred option); or
extending the OBU regime to similar Australian arrangements, with an Australian income cap equal to the amount which eligible foreign OB income increases from the date of effect.59

Comparison with Singapore's Financial Sector Incentive

Following a request from the committee to the OECD on its views on replacement options for the OBU, including comparisons with Singapore's Financial Sector Incentive (FSI), OECD Secretary-General Mr Mathias Cormann responded to the committee:
In case Australia were to implement a new regime with features similar to the FSI, it would need to ensure that all the FHTPs [Forum on Harmful Tax Practices] criteria are met, including the substantial activities requirements for taxpayers benefiting from the regime. This means that the core income-generating activities of such taxpayers should take place in Australia, with an adequate number of full-time qualified employees and adequate amount of operating expenditure. The regime itself and the ongoing compliance with the substantial activities requirements would then be reviewed by the FHTP.60

  • 1
    Revolut, Submission 44, p. 9.
  • 2
    Revolut, Submission 44, p. 9.
  • 3
    Revolut, Submission 44, p. 10.
  • 4
    Revolut, Submission 44, p. 10.
  • 5
    Revolut, Submission 44, p. 10.
  • 6
    AFIA suggested the use of a more inclusive generic term 'digital bank' for firms operating through a wholly digital business model that have, are in the process of, or are contemplating becoming an authorised deposit-taking institution (ADI). AFIA, Submission 59, p. 2.
  • 7
    AFIA, Submission 59, p. 2.
  • 8
    AFIA, Submission 59, p. 2.
  • 9
    Judo Bank, Submission 64, p. [3].
  • 10
    Judo Bank, Submission 64, p. [3].
  • 11
    Proof Committee Hansard, 8 September 2021, pp. 20-21.
  • 12
    Proof Committee Hansard, 8 September 2021, pp. 22-23.
  • 13
    FinTech Australia, Submission 62, p. 29.
  • 14
    FinTech Australia, Submission 62, p. 29.
  • 15
    Financial Inclusion by Design, Submission 3, p. 4.
  • 16
    ACCC, Submission 9, p. 3. See also APRA Chair Wayne Byres, Speech to the 2021 AFR Banking Summit, 30 March 2021.
  • 17
    ACCC, Submission 9, p. 3.
  • 18
    ACCC, Submission 9, p. 3.
  • 19
    Dr Dimitrios Salampasis, Submission 11, p. 11.
  • 20
    FinTech Australia, Submission 62, p. 29.
  • 21
    FinTech Australia, Submission 62, p. 29.
  • 22
    COBA, Submission 47, p. 8.
  • 23
    COBA, Submission 47, p. 9.
  • 24
    COBA, Submission 47, p. 11.
  • 25
    Wise, Submission 18, p. [3]. The CFR report is dated October 2019.
  • 26
    Wise, Submission 18, p. [3].
  • 27
    Wise, Submission 18, p. [3]. See also Senator the Hon Jane Hume, Assistant Minister for Superannuation, Financial Services and Financial Technology, 'Supporting competition and innovation in payments services', Media release, 6 November 2020.
  • 28
    AFIA, Submission 59, p. 2.
  • 29
    ABA, Submission 30, p. 5.
  • 30
    ABA, Submission 30, p. 5.
  • 31
    RBA, Submission 37, p. 5.
  • 32
    Department of Home Affairs and AUSTRAC, Submission 23, p. 5.
  • 33
    Department of Home Affairs and AUSTRAC, Submission 23, pp. 5-6.
  • 34
    APRA, Submission 26, p. 2.
  • 35
    APRA, Submission 26, pp. 2-3.
  • 36
    APRA, Submission 26, p. 3.
  • 37
    Proof Committee Hansard, 8 September 2021, p. 20.
  • 38
    The Hon Josh Frydenberg MP, Treasurer of the Commonwealth of Australia, 'Amending Australia's Offshore Banking Unit Regime', Media release, 12 March 2021.
  • 39
    ABA, Submission 30, p. 5.
  • 40
    ABA, Submission 30, p. 5.
  • 41
    FSC, Submission 39, p. 13.
  • 42
    Proof Committee Hansard, 8 September 2021, p. 9.
  • 43
    FSC, Submission 39, p. 14.
  • 44
    FSC, Submission 39, p. 14.
  • 45
    AFMA, Submission 56, p. 2.
  • 46
    AFMA, Submission 56, p. 2.
  • 47
    AFMA, Submission 56, p. 1.
  • 48
    AFMA, Submission 56, p. 2.
  • 49
    OECD, 'International community strikes a ground-breaking tax deal for the digital age', (accessed 11 October 2021).
  • 50
    AFMA, Submission 56, p. 3.
  • 51
    AFMA, Submission 56, p. 4.
  • 52
    AFMA, Submission 56, p. 4.
  • 53
    AFMA, Submission 56, p. 4.
  • 54
    Proof Committee Hansard, 8 September 2021, p. 7.
  • 55
    Proof Committee Hansard, 8 September 2021, p. 7.
  • 56
    Proof Committee Hansard, 8 September 2021, p. 9.
  • 57
    Proof Committee Hansard, 8 September 2021, p. 9.
  • 58
    Correspondence from the Australia Finance & Technology Centre Advisory Group (received 8 October 2021), p. 1.
  • 59
    Correspondence from the Australia Finance & Technology Centre Advisory Group (received 8 October 2021), p. 1.
  • 60
    OECD Secretary-General Mr Mathias Cormann, correspondence dated 28 September 2021.

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