Category: Articles

Go Bag – Optical Additions

Humvee 10×50 Field Binocular with Galactic Bioware prototypes

The current Go bag is light on escape and tactical optics so I’ve made the following additions:

  • Leupold Mark 4 12-40x60mm Tactical Spotting Scope
  • Humvee 10×50 Field Binocular
  • FLIR Breach PTQ136 Thermal Imaging Monocular (60Hz)
  • Streamlight ProTac HL-X 1000 Lumens Flashlight Black

This all still fits in the Condor Colossus Duffle Bag (52 Litres) although it is getting cramped in there.

In the photo above I’m wearing:

  • G-Shock Digital Military Black Series, Shock Resistant GD400MB-1D
  • Humvee 10×50 Field Binocular
  • Galactic Bioware Prototype Cap
  • Galactic Bioware Prototype Tee
  • (out of shot) Galactic Bioware Prototype Tactical Pants
  • (out of shot) Merrell Moab 2 Mid Tactical Waterproof Boots Black

Optics gear sourced from TacticalGear.com.au

Updated Ride

In preparation for the new skate park which is mostly street (vs. vert), I’ve gone back to my street roots and made some changes to my rig.

Toy Machine Fists Yellow
PartPreviousNew
WheelsSpitfire Formula Four Afterburner Wheels (55mm)Darkstar Divide Wheels Red Black (51mm)
DeckGirl Mike Carroll (8.25 inch)Toy Machine Fists Yellow (7.75 inch)
BearingsBones Super RedsABEC 13 Red

Key points:

  • I reduced the size of my wheels from 55mm to 51mm for better control and feel
  • The hardness of the wheels is about the same (still at the hard end of the range – 99A on the old durometer)
  • The deck is narrower from 8.25 inches to 7.75 inches for easier flipping and technical tricks

I’ve had many Toy Machine boards, but I’ve never tried ABEC bearings or Darkstar wheels so I thought I’d give them a crack. Will report back on my findings.

See the rest of the ride here.

Senate Fintech Inquiry – Initial Thoughts

The second issues paper published by the Australian Senate’s Select Committee on Financial Technology and Regulatory Technology is showing signs of progress in understanding the issues, blockers and opportunities for Australian fintech companies, however is light in the following critical areas:

Access to Talent

Australia’s visa system for entrepreneurial talent, founding team members and next 50 to 500 employees is completely broken. It needs a complete overhaul from the ground-up for the technology sector and requires (at a minimum):

  1. Rapid entry – guaranteed visa approval and issuance within 7 business days or less. The government-aspect of the process should focus on attributes other than employee suitability, whether or not a local search has been undertaken, the candidate’s education and the pay level but instead should focus on auditing the sponsor’s process – verifying background checks, criminal history and health checkups provided by the sponsor on behalf of the visa candidate as well as the available sponsoring quota for that sponsor.
  2. Trust in sponsors – Australian high-potential companies need to be able to become sponsors quickly and easily, and once approved as sponsors, exercise their own discretion in extending nominations to visa candidates and take financial responsibility for those that they sponsor. Sponsors need to be able to get talent into Australia relatively autonomously. You shouldn’t need to convince a government department with no context that you need a new role in your business and why you want to hire a specific person from a top tier tech company from overseas. It is madness.
  3. Abandonment of role classifications – these role classifiers are so dated and somehow are getting further away from the actual labour market over time. Either get rid of them, or zoom them out far enough so they make sense e.g. Engineer, Manager, Designer, Tester, Sales.
  4. Easy come, easy go – if you are no longer sponsored, or violate the rules, you’re out in 30 days.

Access to Capital via Australian public markets

The ASX is relatively self-aware of its own issues in supporting startups and fintech, and I’ve had many conversations with key ASX people about this and I feel comfortable that the exchange is on the right track.

The issues with access to capital for startups via the ASX in Australia is the opaque and systemically conflicted money supply-chain that strangles the ASX. The mid-market investment banking and brokerage industry work together as market-making gatekeepers deciding which companies receive institutional funding and retail distribution and which ones do not. This has far reaching consequences for the innovation ecosystem, including blocking capital raisings for companies that might disrupt large investment positions of favoured clients as well as the customary issues with market-makers such as market failure on the fair pricing and valuation of new companies.

Foreign Investment

FIRB must adopt an unapologetically “Australia first” national interest overlay for all foreign investors. Australia needs to stop being naïve to the sophistication and long-term planning of its key trading partners.

All of the contractual and statutory powers vested to foreign interests must be subject to this new overlay. Australian bodies corporate should be protected in the same way as Australian persons. Given debt is generally more powerful over a business than equity, it is unclear why debt is treated differently and so leniently by FIRB.

FIRB’s powers after financing should be widened to ensure the persisting compliance of the financing to Australia’s national interest. Post investment conduct creates as much exposure for the Australian economy as the investment itself. For example, FIRB should be notified and provided evidence in writing before any foreign creditor action like the appointment of liquidators and receivers to ensure it is being performed for a commercial purpose and not political interference.

FIRB’s role in the innovation sector needs careful thought to balance the objectives of speed and access to foreign capital with the growing importance of protecting Australia’s precious innovation, resources and capital.

I had the benefit of contributing to the first part of the Senate’s Inquiry and am pleased to see it evolving into a holistic “reset” on the domestic innovation settings to help support Australia’s future.

– More to follow

Australian Senate’s Select Committee on Financial Technology and Regulatory Technology

The work of Senator Andrew Bragg and the Senate Select Committee on Financial Technology and Regulatory Technology is very important and I wanted to draw more people’s attention to the issues papers and their findings, as well as my submission from late 2019. I would like to acknowledge the significant contributions of Emma Needham, Michael Walsh and Saurav Das into the December 2019 submission.

Below is official transcript of my evidence given at the Inquiry (as displayed on the Australian Parliament website):

Select Committee on Financial Technology and Regulatory Technology

30/01/2020

KINGSTON, Mr Phillip, Chief Executive Officer, Sargon

Committee met at 09:00

CHAIR (Senator Bragg): I declare open this first public hearing of the Senate Select Committee on Financial Technology and Regulatory Technology. This is a public hearing and a Hansard transcript of the proceedings is being made. We are also streaming audio of the hearing live via the web. I welcome everyone here today. Before the committee starts taking evidence, I remind all witnesses that in giving evidence to the committee they are protected by parliamentary privilege. It is unlawful for anyone to threaten or disadvantage a witness on account of evidence given to a committee, and such action may be treated by the Senate as contempt. It is also contempt to give false or misleading evidence to a committee.

While the committee prefers all evidence to be given in public, under the Senate’s resolutions witnesses have the right to request to be heard in private session. If you would like any of your evidence to be heard in camera, please do not hesitate to let the committee know. If a witness objects to answering a question, the witness should state the ground upon which the objection is taken and the committee will determine whether it will insist on an answer, having regard to the ground which is claimed. If the committee determines to insist on an answer, a witness may request that an answer be given in camera. As noted previously, such a request may be made at any other time.

I welcome Mr Phillip Kingston, founder and CEO of Sargon. Thank you for your time. Information on parliamentary privilege and the protection of witnesses and evidence has been provided to you. Would you like to make an opening statement?

Mr Kingston: Thank you for the opportunity to be here today. Good morning. Following our submission to the committee on 20 December 2019, I am grateful for the opportunity to continue to provide the committee with input from Sargon’s perspective. We hope our contribution will help develop regulatory and market conditions that empower fintechs and regtechs to leverage innovation and expertise to drive impactful and long-lasting change. We commend the committee for the timeliness and scope of this inquiry and your recognition of the opportunity fintech and regtech present to the superannuation industry and to the broader Australian economy.

I thought it would provide some helpful context if I opened by very briefly sharing a little about my background, Sargon and the company’s founding purpose. While I have been CEO of Sargon for a number of years, my roots are in software development and engineering. I have always worked for myself and, while I have founded, grown and exited a diverse range of businesses, the consistent theme between each is simple: I have seen an opportunity in a maturing market with primitive technology.

From one of my earliest businesses in cybersecurity to the work we do today at Sargon, we have used and continue to use technology to challenge the status quo and deliver better outcomes. Sargon is a financial technology and infrastructure company that provides trustee and supervisory services to leaders in superannuation, investment and advice markets. Our technology and expert team navigate regulatory complexity to deliver efficiencies, improve compliance and scale, lower costs, reduce systemic risk and ultimately help improve investment outcomes. Sargon operates across Australia, New Zealand and Hong Kong, with over AU$55 billion in assets under trusteeship and supervision across our corporate trusts, responsible entity and retirement and superannuation trustee services businesses. Sargon’s full-stack technology solution, the Sargon trustee cloud, will launch software as a service offering for superannuation trustees in Australia and New Zealand in early 2020. It has previously been available only to funds for which Sargon was trustee, with the exception of our digital advice platform, Decimal, which has always been available as a service. While Sargon is currently a trustee of 16 per cent of the APRA regulated public offer superannuation funds in Australia—or 22 of the 136 master trusts that APRA regulates—the expansion of our SAS model will mean all superannuation funds can access Sargon’s technology products through licensing arrangements.

When we launched the superannuation fund in 2013, we encountered a broader industry burdened by unnecessary complexity, structural conflicts, bureaucracy and legacy infrastructure, and we found we were not the only ones held back by these constraints. Other fund managers and financial product providers told us they were also feeling the weight of increasing compliance and administrative obligations and the tension between remaining compliant whilst also focusing on sustainability and member outcomes. With backing from global investors, we founded Sargon to provide a dynamic response to the regulatory complexity and cumbersome systems that hindered growth and burdened much of the retirement and investment industry in Australia and beyond.

In the wake of both the Hayne royal commission and the Productivity Commission’s review, trustees and superannuation fund managers must find a way to deliver significantly improved compliance outcomes at lower costs. We believe regtech is the only viable solution that can simultaneously meet both challenges. Regtech’s potential to improve outcomes in superannuation can be drastically enhanced by the implementation of the consumer data right framework in superannuation. The introduction of uniform standards and publicly available machine-readable product reference data will enable regtech to deliver more efficient, productive, transparent and compliant practices across the superannuation industry. A move towards open super will significantly accelerate industrywide uptake of regtech and fintech. Regtech is required as an enabling platform for open super, and fintech solutions can maximise the improved efficiencies and member outcomes possible under an open super framework.

The success of superannuation has secured sustainable retirement outcomes for millions of Australians while also providing a source of deep and stable capital that has alleviated pressure on government budgets, reduced sovereign debt and provided financial security to nation-building projects across Australia. We hope Australia can now seize the opportunity to implement truly world-leading 21st century regulatory and data infrastructure to underpin its already world-leading superannuation system. Thank you for the opportunity to be here today, and I look forward to answering your questions.

Senator SCARR: Can I commend you on the quality and detail in your submission. I felt like a far better-educated person after I read it. Maybe I was coming off a low base, Chair!

CHAIR: Me too!

Senator SCARR: I do appreciate it.

Mr Kingston: Thank you.

Senator SCARR: If I can take you to some of your recommendations, your key recommendation 1 was to foster increased levels of superannuation investment in fintech and regtech by treating fintech and regtech as soft infrastructure assets. What is the critical nature of that classification as soft infrastructure assets? How does that actually provide some benefit to the sector?

Mr Kingston: Part of it is at a conceptual level of how we think about participation of government in the asset class. For example, public-private partnerships: do they exist or could they exist in the development of some of these solutions?

But really I think we’re talking about long-term industry transformation, structural reform that can be enabled by many of the systems that consecutive governments have already put in place, like within the ATO. The SuperMatch and SuperTICK systems are incredible. I would consider them soft infrastructure because they enable incredible amounts of efficiency in the industry. So systems like that, whether they’re run by the private sector or the public sector or a combination, is what we mean by ‘soft’ infrastructure.

Senator SCARR: So it’s a mindset as much as anything, and potentially the corollary of that is just as we built roads to make our economy more productive then we should consider these assets as soft infrastructure in a similar sort of vein, to increase productivity?

Mr Kingston: I think that’s right, and to enable new private-sector applications which may currently be hindered by forms of market failure that might require government intervention. For example, where there’s a series of waste in the industry, where a lot of companies are building the same thing over and over again to remain compliant, perhaps that could be delivered in a different way where it’s provided as an infrastructure to all market participants or most market participants. We would see that as an infrastructure asset class.

Senator SCARR: Can I take you to recommendation 6, which calls upon the development of:

… uniform standards and a framework for the promulgation of machine-readable product reference data in superannuation; enabling a transformational effect on financial literacy and engagement …

It’s one thing to actually provide the data, but then you’ve got the user who is looking at the data. How does the provision of the data actually improve financial literacy? Don’t you need to improve financial literacy on this side, when someone is looking at data? Because if they’re looking at the data and they don’t have financial literacy, do they really know what they’re looking at? I was wondering if you could expand on that for me.

Mr Kingston: Absolutely. I think there are probably two points there. One is this: when we say ‘making products machine-readable’, we really mean getting away from PDF-style product disclosure statements where you have buried in them a lot of very important information. For example, in Australia the superannuation product disclosure statement is a regulated document in terms of its structure. It’s supplied alongside a reference guide, which is a document of incredible length and complexity that very few people can genuinely understand. So I think the sense in which that could be simplified so that’s accessible to a broader segment of the population means that the, if you like, financial literacy burden is lower because it’s plain English. There is a whole host of data that says that people don’t read PDSs before they sign up to financial products, and so basically it doesn’t matter how good they are if no-one is reading them.

That’s where I think the second part of the point is absolutely critical, which is: what initiatives could there be or are there that could be improved to create financial literacy as a national priority? For example, is it a required subject at school? Should it be part of the national curriculum? And is that treatment significant enough? When people go out into the real world, they’re thrust into a whole host of either compulsory financial product purchases, like superannuation, or likely and customary ones, like mortgages and consumer credit et cetera. The query would be: how well equipped is the average person in our population to deal with that? Reforms within advice have made advice potentially less accessible than it was, and so the cost of advice has broadly gone up; therefore, what opportunities that creates for robo-advice and other low-cost advice solution so that more of the population can be advised to then drive some of those financial literacy outcomes for that are crucial.

Senator SCARR: I actually met with some financial advisers earlier in the week. They advise on the traditional basis of: a customer comes into the office, they get their particulars, they give them a statement of advice or whatever it is—that face-to-face engagement. With the use of algorithms et cetera to give financial advice, how do you manage the quality assurance and ensure that the particular characteristics of an individual investor are adequately taken into account in the context of the algorithm? I have a legal background. Your client sits down, you ask them to tell you all the relevant facts and then you’ve got to probe. You’ve got to ask a lot of questions. It’s a real iterative process. Are there algorithms and technology developing in such a way as to be iterative enough to take into account that process that’s inherent in the taking of instructions and then giving of advice?

Mr Kingston: Absolutely. Most of what a human adviser is doing is actually a branch logic tree that’s actually negotiated with the advice group ahead of time. So, whilst it feels like a very interactive process, they’re actually running through a series of: ‘if this, then do this; if not, do this.’ That’s actually quite an algorithmic process anyway, and it’s required to be because the people who manage the compliance of those financial advisers don’t really want advisers going off piste into areas that haven’t been preapproved. So the increasing compliance context of human advisers has actually thrust upon the industry a much more rigid and algorithmic driven advice model anyway.

I don’t think we’re saying, or anyone is saying, that robo-advice is the answer for all situations, and also human advice is not the answer for all situations. I think what would be a good first step is robo-advice where it can be delivered for free or for an extremely low cost and can actually get most of the outcome—for example, we have an advice product called Decimal which advises on intrafund advice within super.

Senator SCARR: Could you give us an example of how that works in practice?

Mr Kingston: Absolutely.

Senator SCARR: Say I go onto the platform, what advice am I seeking? Just give me a practical example so that I can get my head around it.

Mr Kingston: There are two main user applications. One is on how much insurance should you have, because you can buy life insurance, income protection and total and permanent disability insurance through super. Often people don’t really know even the zip code of how much cover they should have, because they haven’t been through a structured process, so it’s asking questions like: ‘Do you have mortgage? Do you have any dependents? How much per annum would they require in order to live a reasonable quality of life?’ And so it takes the consumer through a range of questions—it’s not rocket science—and out of that it just does some basic calculations and says, ‘Well, for your dependents to have this level of quality of life, this amount of income per year, you would require insurance cover of X, and that’s going to cost Y.’ Then you can make an informed decision. It helps the consumer calibrate themselves in the right zip code of level of insurance cover. Often people can be out by hundreds of thousands of dollars because they haven’t thought through all of the consequences like paying back any debts and all those kinds of things.

The second part of the robo-advice that’s very common is the investment options within super. I may be a younger person with a high-risk tolerance who wants to achieve with low growth, so I might put my investments into less liquid, longer term investments like private equity, venture capital alternatives, property infrastructure. Or I may be a closer-to-retirement person who wants a more stable and less volatile portfolio and I’m not seeking to shoot the lights out in terms of returns, so I might opt for a more fixed income, cash, defensive investment option. What the software helps to do is assist consumers with the decision: are they looking for a more defensive-style investment option or a more growth minded investment option? Again, it’s about helping people be in the ballpark by providing data for what other people are doing as well as what would be relevant to their particular needs.

Senator SCARR: The position in recommendation 7 is:

… Mandate the application of current best-practice compliance and reporting standards across the superannuation industry—supported by best-in-class technology systems.

My question really comes down to what your view is of the right balance of a participant in the industry disclosing what system they have so the consumer can make an assessment: ‘Am I dealing with someone who, in my view, has the best technology, the best system? Or am I dealing with someone who’s at a lower standard?’

So, on the one hand, it’s a disclosure issue so the consumer/customer can make a decision. The other extreme is actually mandating the use of what someone determines, whoever that is—the regulator or industry group—is best practice. Obviously there’s a continuum there, in between, in terms of what mandate means as opposed to just disclosing the systems you have and the risks inherent in that.

Mr Kingston: Part of it, I think, can be cleared up by the free market, because when a consumer sees a feature-rich superannuation fund that has great user experience—it’s easy to use, it’s informative, it has things like robo advice included, it provides educational outcomes and it makes effort to explain how things work—the consumer can tell the difference between that and one that does something different to that. So part of it, and the beauty of the system, is that there is quite a lot of choice so that consumers can actually experiment and try different products and see what is the right one for them. I think, from a regulatory intervention standpoint, most trustees of superannuation funds that I interact with are always looking to save costs for members. So part of it is actually capability building and providing options. There are not that many companies like ours who spend their days trying to build systems and software to make their lives easier, so potentially encouraging more investment in companies that are working on the problems and creating some of these soft infrastructure assets that can be used by trustees to lower their operating costs—and transformationally lower their operating costs—is a good thing. I’d recommend that all trustees who aren’t looking at this, or looking at solutions to save themselves costs and provide a better member outcome and experience, should be doing so.

Senator WALSH: Thank you for your submission. The work that you do has the potential to really change the nature of employment in the superannuation sector and other sectors, perhaps, into the future. Can you talk us through that a little bit? Your platform and the potential rollout of Decimal further presumably changes the nature of work. I’m interested in how many people you employ and what types of jobs they do versus the types of people and occupations that are currently employed doing that kind of compliance and advice work for you.

Mr Kingston: We have about 170 employees. The vast majority of those are in Australia. I would say at least 155 of those are in Australia, between mostly Sydney and Melbourne, but we do employ people in Adelaide and in Perth. The employment opportunity, as I see it, is to frame and strategically work as a nation on exporting superannuation to the world in a very serious way—an almost private sector working with the government to do this, because the export opportunity is significant, and the framing of a superannuation system in a box for countries that are currently reviewing their own retirement saving systems, of which there are many. China is currently trialling a third pillar of its retirement system, which looks very similar to superannuation. New Zealand adopted the KiwiSaver system. Systems like the Australian system exist in 22 countries that run a defined contribution system, but there are a hundred-plus other countries that don’t have a defined contribution system, and many of those 22 countries that do could benefit from Australia’s expertise. So I’d love to see this as a national priority to say, ‘Well, let’s get all of our neighbours in the region as good as our system by helping them build it and operate it.’ In Hong Kong right now there is a huge government procurement project to try to drastically reduce costs in their system, which they call MPF—mandatory provident fund. There are a number of Australian companies bidding on this tender, which could be a significant tender, that would create a lot of employment in Australia and potentially be the first institutional case of Australia exporting its know-how—systems, software, IP—to a neighbour in the region. We would love to see more employment in the sector, and I think that comes about by making the sector extremely competitive both in the region and globally. Basically, what technology seems to do in this sector is actually create more export opportunities that we don’t even think about. For example, the aspects within asset management—custody, advice, trusteeship; all the layers that make up a superannuation fund—we’re talking generally here, as a bucket term. There are whole industries that sit inside the provision of superannuation that could be significant industries in their own right. So I’d love to see exports in that area.

Senator WALSH: In terms of a government approach to the sector, what would assist the development of the sector as an export industry? It’s a big issue.

Mr Kingston: That’s a great question. I think clarity from the government as to the role of superannuation in Australia because I think quite a lot of time has been spent on tweaking settings and on: what’s the right contribution rate and what are the right tax settings? Some funds have taken a view that they should invest in nation-building projects in Australia—whether it’s environmental social governance principles, whether it’s infrastructure—and there’s not clarity from government as to whether superannuation has a duty to invest beyond just the member outcome. Some trustees have taken it as an implied obligation, but it’s not formally a sort of national asset pool with a national priority or agenda. So I think clarity on that point would be helpful to the industry. Secondly, the development of effectively a special economic zone or some kind of region. These things tend to work well when they’re in proximity. It could be a superannuation hub, innovation centre or something that actually has groups of people working on the different aspects of the export opportunity—being research of policy, effectiveness of policy, studying what other people are doing in different countries—and actually providing thought leadership on best practice. It could support private sector companies, where appropriate and where relevant, to help manifest those policy and effectiveness conclusions into viable superannuation systems in a box for the many, many countries that are reviewing their own retirement savings systems. The legitimacy that the Australian government could add to that initiative would be incredible to legitimise the work that many great companies are doing who just need a little bit of help.

Senator WALSH: At the moment, if you were going to try and market your technology to China as it developed its potential third pillar, you’re kind of on your own, are you, in terms of trying to figure out how to do that and make the connections overseas, whereas a different environment that creates the networks and the conversations would be helpful.

Mr Kingston: That’s right. There is a real example. Our software is now used in New Zealand within the KiwiSaver system. Getting the first client was very challenging because they would say things like, ‘Show us another KiwiSaver fund that’s using some of this stuff.’ And that’s where we’re saying, ‘Trust us: it works in Australia, and it’ll work here as well.’ But the ability to make that a more credible conversation—New Zealand’s quite close and there are limited cultural differences but, as you get further away from Australia, that becomes a harder sell and so anything that can help bridge these regtech and fintech solutions into other countries and could leverage some of the local credibility in Australia would be of immense value.

Senator WALSH: I’ve got more questions, if we have time later.

CHAIR: Thank you for your very good submission. There are lots of good ideas in there, so I’ll try to be efficient in asking a few questions on different issues. Firstly, in terms of unlocking capital from the super scheme for it to support or work harder for Australia, if you like, on things like fintech and regtech, what’s the best way for us to unlock capital from super?

Mr Kingston: There have been a number of initiatives over the years that have tried to provide institutional investors with some tax efficiency. Those systems have had mixed results. But I think clarity around any structural incentives to invest in certain asset classes would be helpful.

CHAIR: Do you think that would be desirable?

Mr Kingston: I think that if you’re a chief investment officer of a superannuation fund and you’ve got a context that is ruthlessly focused on cost—that is, delivering your super fund at the lowest possible cost—it is difficult to reconcile that with most of the investments that are in the categories of regtech and fintech. Asset managers who manage capital in those areas, like venture capital or private equity, are typically higher fee. It’s a more expensive way of managing money. Whether you do it internally or with external fund managers, you have to do a lot more work to make a private equity style investment than to buy shares on a stock exchange or buy liquid credit products on a bond exchange, or something like that. As a result, there is a tension between the fees and the costs to deliver investments in this area. And so taxation relief or subsidy—R&D type systems—could be a solution.

CHAIR: This is why I want to understand you properly. What you’re saying is: we need to have a particular regime for super funds to invest in things like fintech and a statement of policy stating our intent—that we actually want super funds to do that. Is that what you’re saying?

Mr Kingston: I’m saying that there needs to be more investment in fintech and regtech, and superannuation trustees need clarity on whether they have a mandate to invest for the national priority or just—

CHAIR: Which is the point you made before about the role of super. Your view was that it was unclear what government wanted from super.

Mr Kingston: Many other countries use their pool of retirement capital to advance the interests of the state. Australia does not currently do that.

CHAIR: That’s a very interesting point. So, obviously, this is a super scheme which is created by government mandate. It’s vastly bigger than anything else in the economy. How would you rate the culture of the industry? Would you say it’s dynamic, would you say it’s not dynamic—how would you describe it?

Mr Kingston: If you look at the nature of the board members and executives that operate within super, there’s incredible growth and talent that’s now flooding into the sector purely because of the size and national importance of it. So the ability for large superannuation funds, in particular, to attract talent now, versus five years ago or 10 years ago, is a totally different landscape. Obviously, some of the royal commission and Productivity Commission noise has made it a little less attractive for foreign executives. But, broadly speaking, since I’ve been in the industry the talent has only improved, and I think the culture has become much more professional over time. I think there’s more to do, but there has definitely been a marked improvement since I’ve been in the industry.

CHAIR: My last question is more to do with taxation outside of super. How do you see Australia as a jurisdiction from a tax point of view? Are we competitive or uncompetitive? You’ve obviously thought about this in a global context, so I’d appreciate your views on how we stand today as a country, relative to our competitors.

Mr Kingston: From a corporate tax rate and capital gains tax environment, I don’t think we would be seen as a high-tax country. I don’t think tax is a major part of the decisions. New Zealand is in a very similar range on many of the tax brackets. I don’t think that it’s a high-priority issue as regards personal, corporate or capital gains taxes. I think where there is a lot of commercial uncertainty—which affects investment and the economy broadly—is around the R&D tax scheme, which creates a lot of uncertainty in the investment landscape. So I think much more important than the rates of tax is the certainty of what the scheme is, how stable it is and how it works and widening the aperture of innovation from what is very much at the moment—

CHAIR: What do you think innovation is in an R&D context? How would that be defined?

Mr Kingston: At the moment it’s quite narrow in scientific method and very much focused on the broadening of new knowledge, to my understanding.

CHAIR: And that’s what you think it is, new knowledge?

Mr Kingston: Today I think it’s too narrow. It’s not natively understanding of things like software innovations where it’s an afterthought for things like software products. It’s quite a consistent piece of industry feedback that software intellectual property that’s used by market participants that’s commercialised and that’s generating revenue and jobs in the country should be, and is, genuine R&D. I think scientific-method-only originated R&D is probably not fit for purpose for the current innovation landscape in Australia.

Senator MARIELLE SMITH: Thank you for your submission and the work you put into it. My apologies that I missed part of your introduction, so I hope I’m not going to ask questions which go over that but I do want to kick off on this R&D scheme issue. The issue around scientific method versus its availability and applicability toward software development has been raised with us by a number of fintechs and regtechs. Ideally, how would you like to see that scheme work and operate to make it more supportive of fostering your industry?

Mr Kingston: I accept that as you get a more flexible set of definitions it’s also harder to implement and to monitor, so this is not an easy problem to solve. I think there are areas where it’s clearer than others. If a company is clearly monetising software that it has built, it continues to develop that software and it’s obvious that there is demand for it by virtue of people paying for it, I think it’s fairly clear-cut that that software effort is genuine research and development. Where it gets greyer is where you’ve got a pure start-up environment where it’s not yet clear if people are going to pay for it—and I think probably having good industry consultation on what constitutes bona fide R&D inventive effort. That could be where government or the regulators work with licensed or accredited venture capital providers or it could be linked to the attraction of investment. For example, if a company has raised more than $100,000 with the stated purpose to build software and that’s from an accredited investor, then probably they’re working on a genuine product.

I think the broader question is how important it is that it’s new knowledge because sometimes you can have incredibly successful businesses that create vast amounts of jobs without necessarily being new in the explicit sense of: this hasn’t been done before. For example, a small improvement on something that already exists could lead to a revolutionary business. Facebook was not materially different—if you’re analysing it from a scientific method standpoint—than Myspace was, but it’s created vastly more economic impact. So, in being able to distinguish between commercial potential and R&D merit, it’s more important for a government to be focused on the economic impact of the business, if it’s successful, than how strictly innovative the work is because it may not need to be.

Senator MARIELLE SMITH: Thank you; that’s helpful. I’ll flesh out some of the questions Senator Walsh was asking about jobs, work and skills. How do you see the employment market environment here in Australia in terms of being able to access the skill sets you need, and how does it compare to other marketplaces where fintechs and regtechs are succeeding?

Mr Kingston: I think every country in the world would complain about access to talent. Silicon Valley, New York and those places that most outsiders would see as having great talent pools complain equally about a lack of talent and how hard it is to get good people. I think we need to be realistic that industry is always going to complain about a lack of talent.

I think Australia benefits from a number of incredibly desirable features that some of our foreign peers don’t have—for example, the lack of prohibitive student debt when you come out of university. The HECS and FEE-HELP system is fantastic. The equivalent person coming out of university in the US has a huge burden of student debt, which they have to chip away at. We have some very good settings here for talent, and that means that people can take a little bit more risk when they go into employment, particularly with the many types of minimum wage legislation as well. I think we have a generally good environment for people to take the plunge because they have a little bit less pressure on them than in other countries.

I think where we would find challenges practically is where we do need to bring talent in. That is really difficult if it doesn’t meet an employment list, a job type list, that is extremely dated and doesn’t evolve with the nature of the real world. I think one of the challenges is that sometimes you need talent really quickly to seize an opportunity. If you win a client contract, the idea of having to go through a very cumbersome process to import some talent is prohibitive for delivering on that contract. I think there is a competitiveness issue where our labour mobility is less than that of the countries we’re competing with for export dollars. We are structurally at a disadvantage to them, so I would encourage initiatives that enable the import of workers where there’s a local sponsor company that really wants that person. I’m not sure how important it is that there’s a process of making a job ad, waiting X weeks or months—all that stuff. The opportunity’s gone. The opportunities are moving too quickly to go through that process.

One of the recommendations that we put forward and that we would support is where companies of a certain size are effectively given a default quota where they could employ five people for every 100 without having to go through a process, where it’s not materially affecting the local labour market. Then once they get above that they need to go through a process. But there has to be a shortcut for time-sensitive hires to get the job done and seize that commercial opportunity.

Senator MARIELLE SMITH: If, as you say, the global marketplace for talent is short—it’s not just an issue here in Australia; it’s an issue in Silicon Valley as well—what are the medium-term solutions for that? Obviously a change to the visa system addresses the short-term problem, but it doesn’t address the whole global demand for these skills. What can we do in Australia? Do you see a role for government in building the skill base of our workforce, and where would you like to see that action or that kind of investment, if you think there should be investment, concentrated?

Mr Kingston: I think intellectual property dissemination should be a critical priority of anyone that’s brought in, and having an obligation to share and build capacity amongst the industries that they’re operating in should be an obligation. So it’s basically: we can get you in quickly, but you need to volunteer or you need to contribute at three conferences a year. Actually tying in entrance to the country to contribution and IP dissemination would be something that would be fairly simple to implement. Anything that builds the capacity and capability of Australian workers should be the priority. It’s not a long-term solution to just bring people in every time we need capability. I think the long-term solution is dissemination. When you do bring in someone good, let’s raise the bar of everyone to that level in that particular industry and actually get that information and expertise into the market really quickly. If I were in government, I’d be looking at how you disseminate expertise rapidly and raise the standard of the whole Australian workforce.

Senator MARIELLE SMITH: Do you think our education system is adaptive enough for the skills that you need and fast moving enough to be able to develop students for the jobs that you’re going to be offering them in the future?

Mr Kingston: I think there are a number of aspects of the curriculum that do prepare Australian students for the modern workforce, but I think, in terms of the feedback loop between industry, what the requirements are on a given day, back to the curriculum and what we’re training our kids, the latency is too long. We need to shorten the loop between what the practice is in industry and what’s being taught in our universities and the skills that we’re developing in our high schools and primary schools. I think part of that is building people to be very concept driven and more flexible, based on the future, because we don’t necessarily know what skills are going to be needed. Teaching people strong philosophical underpinnings, software capabilities, structured thinking, logic—these kinds of things that are more general and less trade linked—are probably a safer direction for the curriculum to build people to be successful in the uncertain future.

Senator MARIELLE SMITH: And then specific skills are learned in the workforce

Mr Kingston: Correct.

Senator MARIELLE SMITH: in jobs.

Mr Kingston: Yes.

CHAIR: Last one; quick answer.

Senator WALSH: Apart from this Senate inquiry where you’re talking to us about the industry and what you think it needs to succeed and provide jobs and do good things, where else do you get to talk to government about what the sector needs? What’s your channel, and is it effective?

Mr Kingston: There are a variety of industry associations and groups that provide advocacy for different industries that we work in. Also, as a regulated entity in three countries, we deal with the regulators on a daily or weekly basis in practical matters.

Senator WALSH: In terms of an industry strategy for the future, building the industry up for the future and the potential for jobs and for exports and those sorts of things, is there any intersection—

Mr Kingston: There’s a lot more opportunity to have those conversations. I think forums like this are great, and there should be more of them and more frequently with broader industry representation.

CHAIR: Thank you, Mr Kingston.