October 8, 2014
Source: Australian Financial Review
Author: James Eyers
The Australian tax system could be tweaked to allow more capital and expertise to flow into the financial technology sector without undermining the federal budget, says Andrew Low, the CEO of RedBridge Grant Samuel and former head of Asia for Macquarie Capital.
“We have it in our power to do a lot better than we are doing at the moment” to build a vibrant fintech hub in Sydney, said Mr Low, who is chairing the NSW government’s “knowledge hub” for financial services. “London has been very good attracting the best and brightest European minds into its financial sector by making it attractive to reside there and to run businesses, without reducing top marginal tax rates or having an impact on the overall budget,” Mr Low said at the launch on Tuesday of a report by the Committee of Sydney and KPMG on creating a fintech industry in Sydney.
Potential tax law changes – explored by the Australian Centre for Financial Studies in a submission to the financial system inquiry – include allowing start-ups to pay staff with stock options without generating a tax liability at the time they are granted, providing individuals and companies with tax incentives for investing in venture capital structures, and making VC funds eligible investments for “significant investors visas”.
Ian Pollari, the head of banking at KPMG and author of the report, described tax as “another area where Australia and Sydney falls behind other cities competing for start-up capital”. Sydney recently ranked 44 out of 51 in a recent KPMG survey on tax settings for business, he said.
Capital follows opportunities
Danny Gilligan, the co-founder of Reinventure Group, a VC fund in which Westpac Banking Corp has a stake, said “capital will flow to where the opportunities are” and “the single biggest problem for fintech is the amount of time it takes for regulatory outcomes and the amount of money you have top spend to go through that process. That is a huge impediment for people taking on the sector from an entrepreneurial perspective”.
Mr Pollari said local regulators should look to the UK Financial Conduct Authority’s “Project Innovate”, which has set up a policy unit to engage with fintech start-ups, actively assisting them with licensing processes. “This compresses the time frame a start-up takes to move through the labyrinth and complexity of different regulations,” he said.
Kingsley Jones, a research fellow at the Centre for International Finance and Regulation, said capital requirements are also road blocks for start-up companies, which regulators tend to assess like more mature managed funds. “When you analyse the capital requirements, you find they destroy the economics,” he said.
The report, backed by NSW Trade & Investment, recommended more collaboration on a vision for fintech in Sydney, a physical hub be created to house talent, and for more research into the sector. NSW deputy premier Andrew Stoner said Sydney’s slide to 23rd in a world index of financial centres published last month reflected the “rapid rise of multiple centres in Asia and the Middle East, but it is a timely reminder that we need to articulate our global city’s unique capabilities as a financial centre.”
Jost Stollmann, CEO of Tyro, said he supports the recommendations and a “graduated approach” towards regulation would help fast-growing new companies receive “light but early” oversight. But Mr Stollmann said the report could have gone further. The competition regulator needed to examine how the big banks are dominating new players like Tyro in the payments space, he said, and review government tendering arrangements to give start-ups a leg-up. “With a much more supportive ecosystem there could be many more Tyro’s inventing the future and making Sydney one of the leading hubs of innovation and growth.”
To read the article online go to the BRW website here.