Exclusive Faiths

'Scientology's Legal System' by Phil Lord comments

 This paper provides an overview of the legal system of the religion of Scientology. To the members of the religion, this legal system supersedes and fully displaces the mainstream legal system. Scientology’s legal system is self-contained and independent, with rules, enforcement mechanisms, and correctional facilities. The overview provided in this paper will be useful to courts and to further research in the nascent yet vital field of Scientological legal research.

Lord argues

This paper provides a broad overview of the legal system of the religion of Scientology. No legal scholar has yet provided such an overview. This fact is somewhat perplexing, as the religion was founded some seventy years ago. More broadly, the literature on Scientology is far sparser than that on other recently founded religions such as Jehovah’s Witnesses and The Church of Jesus Christ of Latter-day Saints (two religions which count far more adherents than Scientology). Only recently has Scientology been studied more extensively in the academy, notably under the leadership of Dr. Stephen Kent at the University of Alberta. 

The relative lack of literature on the religion is, arguably, caused by Scientology’s litigiousness and commitment to attack its perceived enemies. For example, Scientology’s STAND (Scientologists Taking Action Against Discrimination) league dedicates a page on its website to attacking Dr. Kent. The webpage’s lead reads as follows:

Stephen Kent is a biased sociologist of religion who adopted the universally debunked theories of psychologist Margaret Singer and sociologist Richard Ofshe of “coercive persuasion” and “brainwashing” as applied to religions and made a career as a paid witness for litigants against new religious movements. In abdicating academic integrity and methodology for pseudoscientific anti-religious vilification, Kent earned the disrespect and ire of professionals in the field.

While I refrain from addressing the specific claims made in this passage, the tone of the passage is indicative of Scientology’s commitment to attack its perceived enemies. Academics are rarely attacked, especially with such strong language. These attacks are likely to have caused a chilling effect within the academy, at least until Scientology’s propensity to attack its perceived enemies became better known. Scientology has, indeed, garnered a great deal of attention in recent years, and its behaviour has been covered (and decried) in national outlets reaching millions of people, such as CNN and A&E. On the latter channel, a television show spanning two seasons has been dedicated to “giv[ing] a voice to victims of the Church of Scientology despite public attempts to discredit them.” As Scientology’s propensity to attack its perceived enemies has become better known, the likelihood of third parties believing the assertions made in Scientology’s attack materials has likely been reduced. The potential impact of the assertions on their target nonetheless remains significant. 

Scientology’s decision to consistently attack its perceived enemies is deliberate. It provides a fit backdrop for this paper’s introduction. The decision is anchored in Scientology’s legal system, mandated by the latter’s rules. In 1965, L. Ron Hubbard created the Fair Game law. The rule provides guidance on the appropriate way to deal with perceived enemies of Scientology. One who is declared fair game may not “be further protected by the codes and disciplines or the rights of a Scientologist.” Hubbard later clarified that the rule extends “to suppressive non-Scientology wives and husbands and parents, or other family members or hostile groups or even close friends” and to organisations such as governments. Once one is declared fair game, she may be “deprived of property or injured by any means by any Scientologist without any discipline of the Scientologist” and “tricked, sued or lied to or destroyed.” Although the Church has asserted that the Fair Game law was cancelled, the assertion is contradicted by the Church’s written policies and organisational behaviour. 

The Fair Game law, therefore, explains Scientology’s decision to attack its perceived enemies. It explains why the organisation’s behaviour is consistent, even in the face of public criticism. Other organisations would likely have altered their practices when faced with negative media coverage. The policy explains why Scientology has not: altering the practice would be inconsistent with the (mandatory) rules of Scientology’s legal system. 

The Fair Game law is a microcosm of Scientology’s legal system. It helps introduce a legal system of significant and unusual magnitude and sophistication, a legal system which aims to be self-contained and independent. Few scholars have studied Scientology and none have studied its legal system. Scientology, unlike other new religious movements, has not actively sought to establish a research field concerning itself as a religion, much less has it sought to embed within the field Scientologist scholars to tell its version of the story. (The perspective of Scientologist scholars remains lacking yet necessary to a balanced conversation.) Scientology and its legal system have, thereby, been defined haphazardly and hastily in courts and in the media, by defenders and detractors. Rarely have disinterested parties with the benefit of time participated in this vital process. 

Studying Scientology’s legal system is important, as, to Scientologists, it supersedes and fully displaces the mainstream23 legal system. Through the constitutional protections afforded to freedom of religion, governments give the space religious legal systems need to exist and allow members of religious groups to act in a way which is consistent with their beliefs – including the rules and their enforcement mechanisms set out in religious legal systems. This paper will provide neither an in-depth nor a full critical analysis of Scientology’s legal system. It will, rather, provide a broad overview of it, which will be useful to further research in the nascent yet vital field of Scientological legal research and to courts in various jurisdictions. Courts have, indeed, thus far understandably struggled to comprehend Scientology’s legal system. They have not benefitted from an objective overview of Scientology’s legal system: they have been in the unenviable position of having to rely on two competing, interested positions – that of the plaintiffs and the defendants – to draw an understanding of even the most basic facts regarding Scientology and its legal system. 

For the purposes of this paper, I divide the legal system into what I consider to be its three building blocks: rules, enforcement mechanisms, and punishment facilities. Section III, IV, and V each explore one of these building blocks. Beforehand, I address, in Section I, the materials which constitute Scientology’s legal system and, in Section II, the way in which Scientology exists as an independent legal system.

US Trade Secrets

'Trade Secrets – A Detailed Analysis of Domestic and Global Challenges' by David E Nevins comments

The vast development of the recognition of trade secret rights from roots in English common law to the Agreement on Trade Related Aspects of Intellectual Property (TRIPs) has ensured that the topic has recently been subject to intense scrutiny. Over the past thirty-five years, trade secret protection has become an essential method for companies to regulate their own respective proprietary information, in place of a backdrop of law. This development was recognized at the legislative level by the enactment of the Uniform Trade Secrets Act (first in 1979, and again in 1985), whereby states were free to modify or omit sections of the text. Nevertheless, the implementation of what was aimed to be a uniform piece of legislation has not gone accordingly. Debates surrounding the status of trade secrets as either a tort or intellectual property (akin to patents, trademarks, and copyrights) have affected the efficiency of the UTSA as a uniform code. To accompany this dilemma, restrictive covenants (accompanied by various doctrines) and confidentiality agreements have also affected how the UTSA is interpreted at a judicial level. Additionally, the enactment of the Economic Espionage Act has criminalized the misappropriation of trade secrets (under certain conditions). The federal legislation has exposed flaws in maintaining trade secret legislation at state level, criminalizing what is a civil violation has created a vacuity in the area of trade secret litigation. To add to this, the United States is a signatory to the TRIPs agreement. The lack of civil federal legislation raises many issues concerning whether the U.S. is satisfying its obligations under the Agreement, and as such, may hinder efforts to influence the policies of China and the European Union, especially. The objective of this academic research is to analyze the status of trade secrets as a category of intellectual property, insofar as how the UTSA distinguishes between trade secrets and confidential information, and how restrictive covenants and contracts exist to protect trade secrets outside the sphere of the legislation. This study will also analyze the flaws in the other categories of legislation that currently exist. Underlying these studies will be the contention that a civil federal trade secrets act can rectify a great deal of problems that are currently preventing uniformity within the US, and preventing satisfaction of external obligations.

Robot Criminals and Replacement

Personhood again. 'Robot Criminals' by Ying Hu in University of Michigan Journal of Law Reform (Forthcoming)  comments

 When a robot harms humans, are there any grounds for holding it criminally liable for its misconduct? Yes, provided that the robot is capable of making, acting on, and communicating the reasons behind its moral decisions. If such a robot fails to observe the minimum moral standards that society requires of it, labeling it as a criminal can effectively fulfill criminal law’s function of censuring wrongful conduct and alleviating the emotional harm that may be inflicted on human victims. 

Imposing criminal liability on robots does not absolve robot manufacturers, trainers, or owners of their individual criminal liability. The former is not rendered redundant by the latter. It is possible that no human is sufficiently at fault in causing a robot to commit a particular morally wrongful action. Additionally, imposing criminal liability on robots might sometimes have significant instrumental value, such as helping to identify culpable individuals and serving as a self-policing device for individuals who interact with robots. Finally, treating robots that satisfy the above-mentioned conditions as moral agents appears much more plausible if we adopt a less human-centric account of moral agency.

'In Defense of Artificial Replacement' by Derek Shiller in (2017) 31 Bioethics 393-399 comments 

If it is within our power to provide a significantly better world for future generations at a comparatively small cost to ourselves, we have a strong moral reason to do so. One way of providing a significantly better world may involve replacing our species with something better. It is plausible that in the not-too-distant future, we will be able to create artificially intelligent creatures with whatever physical and psychological traits we choose. Granted this assumption, it is argued that we should engineer our extinction so that our planet's resources can be devoted to making artificial creatures with better lives. 

The pace of technological change is very difficult to predict far in advance, but our current trajectory makes it reasonable to guess that we will have the power to create genuine artificial intelligence – artificially created individuals that equal or surpass human beings in all dimensions of cognition, including creativity, power, insight, and wisdom – by the close of this century. Some futurists1 have worried about our species’ continued existence after this development. Such concerns are motivated by the recognition that it may be difficult to predict and control artificial creatures that are smarter than we are. There is something selfish about this fear and the ethically responsible thing for us to do may be to engineer our own extinction. 

In this paper, I will present a simple speculative argument for what I will call the Artificial Replacement Thesis. The Artificial Replacement Thesis suggests that we should replace our species with artificial creatures who are capable of living better lives. I will start by introducing several assumptions that will be integral to my argument. In the second section, I will defend a supplemental principle that I call the Future Beneficence Principle, that says that we should go out of our way to improve the well-being of future generations, even if our actions will change who comes to exist. With these foundations laid, I will present my argument for the Artificial Replacement Thesis in the third section. I will spend the remainder of this paper formulating and replying to salient objections. … 

My argument for the Artificial Replacement Thesis relies on two assumptions, which I will take for granted in the remainder of this paper. 

First, I will assume that we will have the power to create intelligent artificial minds that resemble natural minds in every morally relevant way we wish. Morally relevant ways might include: consciousness, cognitive flexibility, emotional capacity, capacity for happiness and unhappiness, ability to engage in interpersonal relationships, creativity, freedom of the will (in whatever sense we have it), and philosophical, religious, or artistic insight. Whatever nature can do with clumps of neurons, we will be able to do artificially. If this assumption is correct, it means that with the right design, artificial creatures will be able to fall in love, experience exquisite joy, write novels that probe existential self-doubt, ponder the basic metaphysical structure of reality, and appreciate the beauty of mathematical theorems. … 

I think that we cannot ignore the possibility that we will be able to create artificial creatures with lives of optimal well-being in the not-too-distant future. If we can do that, a genuine utopia on Earth may be within our grasp. We must merely have the grace to step out of the way to let it happen.

Facebook and the social contract

The New Social Contract: Facebook's Community and Our Rights' by Tomer Shadmy in (2019) 37 Boston University International Law Journal (forthcoming) comments

Digital platforms have an ever growing ability to control and regulate their users. The platforms' terms of service, content moderation policies and algorithms form new regulatory ecosystems. These new ecosystems, argues this article, do more than simply establish sets of affordances and constraints; rather, they challenge and transform basic legal concepts. To demonstrate this argument, the article analyzes Facebook’s design, technology, and rhetoric. The analysis shows that Facebook's infrastructure creates and promotes a novel regime of rights. Rights, under this regime, protect the freedom to feel instead of the freedom to choose. They do not generate any duties. The platform itself is not accountable to, or limited by, the users’ rights. This regime of rights, unlike traditional ones, is not functioning through discourse and interpretation, but through code. Thus, as the article reveals, digital platforms go beyond adding a digital layer to our personal, professional, and political relations: they also add a normative and legal layer, and shape new social contracts. Alarmingly, for the most part, users seem unaware of this normative aspect.

NSW Dispute Resolution

The NSW Law Reform Commission report on dispute resolution comments

Dispute resolution processes (traditionally referred to as “alternative dispute resolution” or “ADR” processes) can provide many benefits for disputing parties. They can reduce the costs and delays associated with litigation and facilitate flexible outcomes. In the context of litigation, dispute resolution can keep disputes private and avoid exposing them in public hearings. It can ensure cases are managed effectively, for example, by narrowing the issues in dispute. Dispute resolution can also assist parties to preserve, repair or improve their relationships. 

There has been a considerable growth in the use and availability of dispute resolution processes in the past couple of decades. This is reflected in the NSW statute book which now includes around 50 statutes that make provision for, or acknowledge the availability of, some form of dispute resolution. 

On 1 March 2013, the Attorney General asked us to review statutory provisions for dispute resolution. ... Our consultation process involved two consultation papers, a survey of NSW government agencies that administer dispute resolution provisions, and some face to face consultation. 

The two consultation papers were:

• Consultation Paper 16 – Dispute Resolution: Frameworks in New South Wales (“CP 16”) (released in April 2014), and 

• Consultation Paper 18 – Dispute Resolution: Model Provisions (“CP 18”) (released in December 2016) - noted here

In the first half of 2014, we also surveyed all NSW government agencies that had a role in administering the dispute resolution provisions. We wanted to understand how broadly the provisions are used and what issues the agencies encountered. We received 91 responses. 

CP 16 gave an overview of the statutory provisions for dispute resolution in NSW. It asked what provisions are appropriate in the variety of contexts the existing provisions cover. We received 14 submissions. These are listed in Appendix C. 

Mediation emerged as the focal point of stakeholder discussion in response to CP 16. We heard that mediation and quasi-mediation processes in NSW statutes vary in detail and coverage and are often inconsistent. Stakeholders suggested that this patchwork might contribute to uncertainty among users. In particular, it is sometimes unclear exactly what types of dispute resolution are available and what safeguards apply in particular statutory contexts. Further, there are currently no provisions that protect parties during commercial/consensual mediation outside a judicial or particular statutory context. 

Despite this, we were not persuaded there would be significant benefit in attempting to consolidate these existing provisions into one or a small number of models. Rather, we considered it might be beneficial to develop model provisions that would apply to mediations taking place outside any statutory or judicial context, except where parties agreed not to apply them. We also considered these model provisions could also be applied in some existing statutory contexts. 

In CP 18, we suggested model mediation provisions on a limited range of topics:

• definitions 

• confidentiality of mediation communications and their admissibility in evidence 

• mediators’ immunity 

• termination of mediation, and 

• enforcement of the outcome of the mediation.

 Submissions to CP 16 had identified these areas as appropriate subjects for uniform provisions to improve consistency and clarity.

However, the majority of submissions to CP 16 did not support:

• provisions governing the representation of parties to a mediation Introduction 

• a requirement of good faith participation, or 

• provisions governing the choice of mediation practitioners.

Stakeholders thought it would be difficult to achieve uniformity in these areas in light of the wide variety of contexts in which mediation takes place. 

In CP 18, we suggested the model provisions could be applied in the statutes listed in Appendix A to this Report. We did not think they were appropriate for application to those statutes listed in Appendix B to this Report. Accordingly, we proposed in CP 18 that the statutes listed in Appendix B be excluded from the scheme. This includes statutes that apply to judicially-ordered or supervised mediations, and statutes that already cover the same or similar matters as the model provisions. We thought these excluded statutes could be amended in due course (to the extent appropriate) to bring them into line with the model provisions. 

We initially intended that the model provisions would apply to the related processes known as neutral evaluation and conciliation. Submissions to CP 18 (listed in Appendix D) generally did not support such extension, as we discuss below. ...

The Commission's conclusion is

After further consideration, we have decided not to recommend the adoption of the model provisions suggested in CP 18 or any other changes to the law. 

This conclusion is informed by a number of interrelated considerations. While we have considered some potential uniform provisions, we do not believe that statutory intervention is warranted, for a number of reasons:

1. Mediation is context-specific, and what is appropriate in one context does not necessarily suit another. 

2. It is a fundamental precept of voluntary (as opposed to court-ordered) mediation that the parties are in control of the process, and can decide on the terms and arrangements for mediation – including the mediator’s rights and immunities. 

3. Any generic provision would require a common approach to what is mediation and who is an eligible mediator. Having regard to the diverse contexts for mediation, we have not reached any degree of consensus among stakeholders on these matters. 

4. The existing law of without prejudice privilege provides a sufficient default provision for the confidentiality and admissibility of mediation communications, where the mediation agreement does not otherwise provide. 

5. There is no particular reason for affording an agreement that results from mediation any greater status than one that results from any other process of negotiation. 

6. On balance, suspending limitation periods pending mediation would create more problems and controversies than leaving limitation periods to run, and would tend to promote delay. 

7. No sufficient harm has been identified as arising from the current diverse arrangements to warrant the imposition of a uniform statutory regime. 

We have therefore concluded that there would be no sufficient benefit gained from adopting the model provisions we proposed in CP 18. The best course is to leave the existing statutory provisions unchanged and allow them to develop as the need arises. 

Cases of potential and actual confusion among users of dispute resolution services may be resolved by providing better information about processes and encouraging better communication between parties and dispute resolution service providers. Such approaches do not need to be the subject of recommendations for law reform.

Cryptocurrencies and Fintech Futures

'Cryptocurrencies in the Common Law of Property' by David Fox comments 

The development of cryptocurrency technology has been driven by a desire to create autonomous systems for carrying out digital transactions. The people who use them may neither seek nor want extraneous legal intervention. Property law is as much a kind of state intervention as all the more familiar rules of financial or securities regulation that have attracted so much attention from legal commentators. Property law is default law. If a certain resource can be characterized as an object of property, then the rules of property law apply to it as far as the nature of the resource allows. The view advanced here is that many features of a common law system of property would apply to cryptocurrencies. Once the data comprising crypto-coins are understood for what they are, they should be a suitable object of property. The old binary conception of personal property consisting in chooses in possession and chooses in action should not be an obstacle, if indeed it ever was, to their recognition as property. With some necessary adaptation to allow for the intangibility of crypto-coins, the usual rules of derivative transfer of title and tracing could apply to them. Granted, the common law has no ready-made rules especially designed for cryptocurrencies. But that very absence of rules may be as much an adaptive strength as a systemic failing. The common law grows by a process of principled analogy between the old and the new. The common law provides a reserve of general principle that can provide a default set of property rules for cryptocurrencies without the need for targeted statutory intervention.

The 141 page Australian Centre for Financial Studies report by Deborah Cope, Yvette Bauder and Lee Cope on International competition policy and regulation of financial services comments

Like many countries, Australia is examining the role of fintech in its financial services sector. Governments and regulators are considering whether consumers and businesses using financial services would benefit if policy and regulation were changed to recognise the specific characteristics and circumstances of fintech businesses. There are, however, no comprehensive data or analyses of the costs and benefits of such policies. Some information is emerging, but it is still limited. 

This paper looks at what international evidence is available and draws on various countries’ experiences with financial services reforms to provide data that could inform Australian policy discussions. 

Internationally, the demand for fintech services is strong and growing. It is no longer just techsavvy early adopters using these services; they are becoming more mainstream (EY 2017, p.7, 20). Many fintech business and commentators argue, however, that there are constraints on fintech’s ability to compete with traditional financial services and, as a result, consumers and businesses are not fully benefiting from the improvements in quality, price and new products that added competition could bring. They also argue that governments and regulators should change their policies and approaches to regulation to facilitate competition. 

Care is needed, however, when governments consider intervening in markets, even when the objective is to improve competition. To improve welfare, the benefits need to result in overall improvements in efficiency and economic growth, rather than benefitting one business, sector or industry at the expense of others. Regulators still need to be able to maintain acceptable standards of financial stability, and consumer and investor protection. Additionally, intervention can be costly, and those costs may be greater than the benefits of government action. 

While, as noted above, there data on the overall benefits and costs of overseas fintech policies are limited, international experience can still help inform Australian policy. It can help to identify areas where reform could be considered in Australia, because there are potential barriers to competition, and evidence of potential benefits from reform. Further analysis of the costs and benefits of specific proposals is needed, however, before concluding that such reforms would definitely benefit the Australian economy. 

International experience 

FinTech growth appears to happen under three types of country conditions. The first are conditions such as in the US, which has a history and culture of promoting startup businesses, and established processes for supporting new business investment. It has the world’s highest investment in fintech, built on a strong venture capital sector. In other countries such as China, fintech has grown because businesses have been able to operate in regulatory gaps, outside the existing rules. However, this has resulted in problems when poor practices have emerged. Some such countries are now introducing new rules to regulate these providers. The third group of countries, including the UK and Singapore, are adopting policies and regulation that recognise the specific characteristics of fintech businesses and using a sophisticated approach to fintech policy and regulation to increase competition in financial services. 

Regulation affects market entry 

There are regulatory and market barriers to businesses entering the financial services market. Since the global financial crisis, the cost and complexity of regulation have increased, and there is considerable evidence that the presence or absence of financial services regulations, and the form of those regulations, affects the cost of starting a fintech business and those businesses’ ability to compete (Deloitte 2017a, p.39). Individual fintech businesses report that regulation creates barriers to innovation, making it harder for them to enter the financial services market and compete with traditional providers. Where there are gaps in financial services regulation, there is often market entry, growth and innovation in fintech, indicating that the absence of regulation enables innovation. Finally, sector experts consistently report that investment grows when governments initiate changes to open up markets. 

Barriers to innovation and market entry often reduce competition. There may be benefits, therefore, to reforms that remove such barriers without undermining the objectives of the regulation. 

Competition and consumer benefits 

There is evidence that growth in fintech services results in new products and services that benefit consumers and stimulate competition. Such competition can put considerable pressure on established financial institutions, which creates incentives to reduce bank fees and interest rates. It can also increase access to financial services, and the range of services and service providers available to customers (section 2.2). 

International competition policy and regulation of financial services 

In areas such as small business lending, where the cost of finance is high and increasing, there are also potential benefits to having access to a broader range of financial services (ASBFEO 2017, p.2). FinTech can play a role in this area, as 16 per cent of investment in fintechs has been in business lending (World Economic Forum 2015, p.10). Businesses using these services believe they are essential; 33 per cent believe they would be unlikely to get funds elsewhere (Nesta 2014, p.10). Many of the initiatives that make markets conducive to fintech growth have broader competition benefits. Such policies allow fintech products and services into the market, but also encourage more competition among traditional financial services providers. There are extensive benefits to greater competition in broader financial services. The Digital Single Market Strategy, for example, is expected to add €415m to the EU economy (EC 2017c). The UK Competition and Markets Authority also conservatively estimated the direct benefits alone of its recommendations to improve competition in banking were £150m to £250m a year, accumulating to £700m to £1bn over five years (CMS 2016, p.xivii). 

These gains do not rely specifically on fintech growth. There is, therefore, a strong case for considering broad competition reforms in financial services that enable competition from fintech, but also facilitate competition across all financial services providers without compromising market stability or customer protection. Such policies can be valuable, even if the expected growth in fintech does not eventuate. 

International priority reform areas 

International commentary on fintech policy and consultation in preparing this report highlighted four areas of government policy and regulation that are seen as potentially significant:

1. A pro-competitive approach to financial services 

2. Open, transparent regulators that engage with fintech businesses 

3. Removing specific entry barriers 

4. Enabling connectivity. 

A pro-competitive approach to financial services

Financial services regulators commonly have objectives to maintain the integrity and stability of the financial system, including monitoring and managing business and financial risks, and protecting consumers’ and investors’ interests. Some are also required to deliver these objectives in a way that explicitly recognises the benefits of competition. The UK is the most prominent example where financial regulators have an explicit objective to promote competition in financial services markets. The UK Financial Conduct Authority’s competition mandate gives rise to a range of activities, including making new rules, issuing guidance, conducting market studies and undertaking investigations and enforcement. The Bank of England Prudential Regulatory Authority also has a competition objective, which it is required to pursue as far as possible without compromising its primary objectives. Regulators in some other countries are also required to consider competition, innovation and market entry when they make regulatory decisions (section 3.1). 

In Australia, the Australian Prudential Regulation Authority is required to consider competition and contestability in its decisions, and the Australian Government recently announced that the Australian Securities and Investments Commission (ASIC) has been given a competition mandate. 

Based on the UK experience, it appears that an explicit competition mandate with accompanying powers affects the type of work the regulator does, the issues it considers when making decisions and the outcomes against which it is held to account. In practice, the UK competition mandate has resulted in its regulators actively seeking to inform themselves and others about competition issues, and responding more proactively when such issues come to their attention. It makes it clear that the regulator’s decisions must take account of the effect on competition, and that the regulator needs to be transparent about how this is done. Overall, the regulator has a better understanding of competition issues and the authority to act if competition concerns arise. 

Open, transparent and engaged regulators 

Regulation can create barriers to competition because of the nature of the rules, or the way they are administered and enforced. FinTech businesses, advisors and investors value having a clear point of contact with the regulator, an open regulator that will engage with business, and clarity in their regulatory obligations. They also value clear and proportionate regulation that supports consumer confidence and trust. Open processes that engage businesses can help regulators to achieve their objectives without imposing costs or constraints on businesses that stifle innovation and competition. 

Regulatory uncertainty is, however, a continuing issue. Engaging with a regulator requires considerable time and resources, and businesses’ willingness to devote these resources shows the importance they place on such engagement. ASIC data indicate that early engagement has tangible benefits. Businesses that sought informal advice, for example through ASIC’s Innovation Hub, significantly reduced the time for their license approval (EY & FinTech Australia 2017, p.34). 

Two specific areas where industry has highlighted the need for strong engagement with regulators (and many regulators have responded) are regulatory sandboxes and licensing of new service providers More than 20 countries have, or are planning to, set up regulatory sandboxes. The UK sandbox is the most well-established, with 18 businesses entering testing from the first cohort and 31 businesses from the second cohort declared eligible. Interest in the sandbox is growing, and, while it is early days, the Financial Conduct Authority has analysed the results from the first year and concluded that the sandbox has been a success. Sandbox activities benefitted consumers by reducing prices and improving service quality. Participants also benefitted from reductions in the risk, time and cost of launching businesses to market, obtaining full authorisation and attracting external funding. This further reduces barriers to market entry. 

In Australia, legislation is before Parliament to expand the scope of activities and the timeframe for testing financial products and services in ASIC’s regulatory sandbox (Attachment A). 

Many fintech businesses can and do provide services that do not require a licence. But licensing is emerging as an issue, as Governments extend the range of activities that require authorisation and fintech businesses expand their activities in competition with traditional financial services. 

New bank entry is usually supported, to improve competition in financial services. There is some evidence that challenger banks have had an impact on competition, particularly in areas not well serviced by the traditional banking sector (section 3.2). There are, however, barriers to new businesses obtaining a licence, and while standards are needed to maintain security and trust in financial services markets, some countries are reviewing their licensing processes and minimum capital requirements to ensure they do not create unnecessary barriers. 

Removing specific entry barriers 

Regulatory systems and financial infrastructure were designed with established financial institutions in mind. They may therefore be costly to navigate or unsuitable for new fintech services, or unable to accommodate the technological innovation customers expect. Many countries are modernising their regulatory approaches in areas such as payments systems and opening up banking systems to facilitate innovation and competition. The aim is to remove barriers that unnecessarily restrict competition without undermining the objectives of the regulation. 

Payments systems reform is facilitating faster payments without compromising security. These reforms are generally not directed specifically at fintech businesses, but they result in considerable cost savings and, to the extent they enable more technologically-based payment services, they provide an opportunity for fintech innovation and competition. 

Countries are also looking to make their banking systems more open. There are currently practical barriers that make it difficult for new entrants to integrate their products or services with those that customers already use. However, the value added by many fintech services relies on them working with other types of financial services. Attracting customers away from incumbent providers is a significant challenge identified by fintech businesses, but it is necessary to allow the collaboration and innovation that best serves the financial sector. Policies to encourage more open banking fall into two broad categories: (1) giving customers more rights to own and control their data and requiring businesses holding that data to provide it to a third party at the customer’s request (data ownership and control); and (2) requiring incumbent providers to modify and open their systems to make it possible for third parties to connect and provide additional services at the customer’s request (open APIs). 

Lack of access to data and bank systems is hindering innovation. Regulators, consumer organisations and industry participants have all argued that open data policies would make it easier for customers to search and switch accounts, improving competition and encouraging innovation. While many open banking reforms are at an early stage, investment and interest in new services is already growing, and significant benefits are predicted (section 3.3). APIs are commonly used to generate innovation that disrupts traditional business models across a range of sectors outside financial services. There are also existing examples in the financial services sector, where open access has stimulated growth in services and competition. 

In some countries, some banks are becoming more open without government action. However, it is unlikely that an industry-wide, consistent approach will emerge on its own. While the benefits and efficiencies of an open system are recognised, there are significant first mover disadvantages. Individual banks are reluctant to open their systems without similar action by their competitors. There are also benefits in developing standards and approving service providers centrally, to avoid inconsistency and duplication. 

The Productivity Commission argued that data has tremendous value. It concluded that there are enormous benefits if data is widely used and more generally available, but that there are risks. Nevertheless, many of these risks can be managed with the right policies and processes (PC 2017, p.8-9). 

Enabling connectivity 

Some aspects of fintech are considered disruptive, such as replacing existing services with new services or methods of delivery. However, most of the growth opportunities require collaboration, either across fintech businesses or between fintechs and more traditional financial services providers. The need for collaboration is well recognised. Such collaboration can emerge through many mechanisms, and there is international evidence of interest in initiatives such as partnerships among businesses, participation in industry associations, and involvement in incubators, accelerators, innovation labs, hackathons and similar programs. 

The report argues that there are international lessons for Australia

In Australia, there is considerable opportunity for fintech growth, and the use and awareness of fintech services is high (EY 2017, p.12-13). Given the size of the Australian market and the newness of its fintech sector, Australia ranks relatively well internationally. While, as noted above, there is evidence of benefits from increased competition and greater access to services from growth in fintech, it is more difficult to establish the link between these benefits and government policies. Government policy and regulatory changes will benefit Australia when the broad benefits of those policies outweigh their costs. There are three main categories of potential intervention:

1. Policies that remove regulatory barriers to entry (more open and transparent regulation, industry sandboxes, licensing reforms and pro-competitive mandates) 

2. Policies that remove market barriers to entry (opening up banking and payments system modernisation) 

3. Industry promotion and support (grants and businesses assistance). 

Policies that remove regulatory barriers to entry 

It is good regulatory practice to remove unnecessary barriers to market entry and competition, so that policy focusses on managing the risk of harm and does not favour a particular business model or technology. 

This is an area where the benefits of reform often justify the costs, but such reforms are not costless, particularly in markets with a long-established regulatory framework. Reforms are likely to have community-wide benefits when they:

• Can be introduced without imposing excessive costs on businesses or taxpayers, and any risks such as fraud, corruption, consumer detriment or market instability can be managed 

• Result in significant growth in new products and services, service improvements or large cost reductions, or encourage existing financial services providers to improve their efficiency. 

Policies that remove market barriers to entry 

In some markets, there are natural barriers that make it hard for new businesses to compete, even with favourable policies and regulation. These can arise because of market characteristics, or because the incumbents have a strong entrenched market position (perhaps as a result of previous government regulation). In industries such as telecommunications, electricity and transport, governments have changed policies and regulation to facilitate competition. A lot of commentators argued that pro-competitive reforms are necessary to realise the full potential of competition in financial services. Changes that open up banking and facilitate access to data potentially have high compliance and implementation costs, but if they stimulate improvements in efficiency and innovation, and encourage cost reductions, they are also likely to deliver considerable benefits. 

Industry promotion and support 

Industry support programs run the greatest risk that their costs outweigh the benefits. Unless they are designed to address a clear market failure or achieve social policy objectives, they may simply transfer activity from one sector of the economy to another, without stimulating broader economic or social benefits. 

Should Australian-based businesses be a priority? 

Customers benefit from new products and services regardless of whether they are produced by Australian or overseas businesses. Business growth also benefits the Australian economy, as long as it is based on the competitiveness and efficiency of the businesses, rather than policies or supports that favour one activity over another. 

Policy should therefore be focussed on enabling competition wherever it comes from, removing barriers to setting up businesses in Australia, and addressing market failure. Australian consumers and business customers would then have access to the best possible financial services. In addition, Australian businesses that succeeded in a competitive domestic financial services market are likely to be well equipped to grow and compete overseas

NSW Postmortem Digital Assets consultation

The NSW Law Reform Commission consultation paper regarding access to digital assets upon death or incapacity asks the following questions

(1) When a person dies what should it be possible for third parties to do in relation to the person’s digital assets? In particular: 

(a) Who should be able to access those assets? 

(b) What assets should they be able to access? 

(c) For what purposes should they be able to access them? 

(d) What documentation should be needed to authorise a person to access those assets? 

(e) What restrictions should there be on that access? 

(2) When a person otherwise becomes incapable of managing their digital assets what should it be possible for third parties to do in relation to those assets? In particular: 

(a) Who should be able to access those assets? 

(b) What assets should they be able to access? 

(c) For what purposes should they be able to access them? 

(d) What documentation should be needed to authorise a person to access those assets? 

(e) What restrictions should there be on that access? 

(3) Should NSW enact a law that specifically provides for third party access to a person’s digital assets upon death or incapacity? Why or why not? 

(4) If NSW were to legislate to provide specifically for third party access to a person’s digital assets upon death or incapacity:

(a) How should the law define “digital assets”? 

(b) How can the law appropriately balance privacy considerations with access rights? 

(c) How can the law best overcome conflicting provisions in service agreements? 

(d) How can the law best overcome provisions in service agreements that apply the law of some other jurisdiction? 

(e) What else should the law provide for? 

(5) What alternative approaches might be desirable to deal with the issue of third party access to digital assets upon death or incapacity? 

(6) What amendments could be made to existing NSW laws to ensure appropriate third party access to digital assets upon death or incapacity?

The Commission comments

Having considered the difficulties with the law in this area, we are of the view that, in the absence of Commonwealth action, a possible legislative approach could be to enact NSW provisions that explicitly allow a particular class of person to access a person’s digital assets upon death or incapacity, in limited circumstances. 

Preliminary submissions have made some suggestions about what any such provisions could contain. For example, they could:

• be based on existing models in other jurisdictions, such as in the US or Canada 

• specify when NSW law is to be considered the proper law and a NSW court the relevant forum 

• define “digital assets”, for example, in a way that:

•  is “sufficiently broad to cover the types of assets currently in existence, but also flexible enough to encompass relevant classes or types of assets that may come into existence in the future” 

• incorporates examples and exclusions of what constitutes a digital asset, and 

• distinguishes between financial and sentimental assets so that specific considerations and rules can apply separately to each class 

• determine:

• which third parties should have access rights to what assets 

• who should have the authority to decide what happens to a person’s digital assets, and 

• what should happen if relevant parties disagree 

• clarify how the wishes of a person should be taken into account when deciding about their digital assets upon death or incapacity exempt the operation of service agreements and privacy laws in defined circumstances 

• impose obligations on service providers, such as Facebook, Instagram and Twitter, to ensure that, before accessing an account, users advise what they want to happen to their digital assets upon death or incapacity 

• provide for the way in which relevant non-legislative tools (such as digital legacy services) should operate 

• clarify the effect of existing laws that potentially create a barrier to access, such as succession and criminal laws 

• set general or specific directives to preserve, delete or disclose a person’s data upon death 

• make it an offence to misuse a person’s digital assets after death or incapacity 

• freeze or suspend a person’s digital assets after their death or incapacity to avoid misuse or identity theft