Consumer group Choice says plans to let fintech start-ups operate without financial services licences for their first six months would put consumers at risk.

But the Australian Securities and Investments Commission (ASIC) has told insuranceNEWS.com.au the proposal would only apply to a limited range of products and would include most conduct and disclosure safeguards.

The regulator’s proposal aims to make the financial sector more innovative.

Choice says in its submission to a consultation paper released by ASIC in June that it fears start-ups would not need to prove they have adequate arrangements to manage conflicts of interest.

Nor would they seem to need to take reasonable steps to ensure staff comply with financial services law; maintain the competence to provide financial services; adequately train workers; or have adequate risk management systems.

“The proposal in the ASIC consultation paper would lower the bar for an industry that has left consumers billions of dollars out of pocket – even when subject to licensing,” Choice Head of Campaigns and Policy Erin Turner said. “Imagine the damage that can be caused by unlicensed businesses.”

But ASIC’s innovation hub co-ordinator Mark Adams told insuranceNEWS.com.au the proposal is “a balancing act”, aiming to reduce the burden for start-ups to test a concept alongside alternative mechanisms that protect consumer confidence.

He says the “regulatory sandbox” proposal would apply only to a limited class of liquid investments. “It’s not allowing investment in complex or non-mainstream financial products.”

Mr Adams says start-ups would still need to comply with most conduct and disclosure obligations, including the best-interests duty, dispute resolution obligations and adequate compensation arrangements.

“We do not want to set up an arrangement that undermines confidence in the financial services conduct sector,” he said.

The licence exemption would be limited to companies that serve up to 100 retail investors, with a cap of $10,000 per retail investor.

Mr Adams says ASIC will consider Choice’s concerns, along with about 30 other submissions received before last month’s deadline, and will reach a decision on the proposal later this year.