On 8 September 2023, Treasury released a second consultation paper (Consultation Paper) to update Australia's payments regulatory framework. This follows Treasury's first consultation in June, and a draft bill introduced in October to reform the Payment System (Regulation) Act 1998 (Cth) (PSRA). The new Consultation Paper marks another significant stride by Australia to implement its ambitious Strategic Plan for a future ready payment system.
The Consultation Paper sets out a new framework for multiple regulators and industry bodies to oversees different payment services, depending on their potential impacts on the payment system.
Multi-layered regulatory framework
This "multi-layered" regulatory framework is visualised in the table below:
As shown by the table, the regulatory framework consists of four separate, but interconnected layers which apply to different aspects of the payment system. They are:
Australia financial services licensing (AFSL) regime - upheld by the Australian Securities and Investments Commission (ASIC), will apply to all payment service providers (PSPs). PSPs are entities that perform a payment function, such as issuing payment stablecoins, providing a stored-value facilities (e.g. a pre-paid card), providing a payment instrument (e.g. debit and credit cards) or facilitating payments (e.g. direct debit services).
Prudential regulation - administered by the Australian Prudential Regulation Authority (APRA), will apply to major stored-value facility (SVF). Major SVF are proposed to include SVF with more than $100 million in customer funds. Major SVF, and certain designated payment facilitation service will require an APRA licence to operate.
Common access requirements - another form of prudential regulation, will be set and overseen by APRA. This is intended to provide a new pathway for non-bank PSPs to directly access payment systems, something that they currently cannot do.
Technical industry standards - mandatory technical standards, which could include a revised ePayment Code that is currently non-mandatory, will be approved by the Reserve Bank of Australia and apply to a broad range of PSPs.
Payment functions and PSPs
Central to this regulatory framework is the scope of payment functions, which underpins the definition of PSPs. Absorbing feedback from the previous consultation, Treasury has proposed in this Consultation Paper a revised list of payment functions:
ASIC's AFSL regime will generally apply to all PSPs that perform a payment function. Traditionally, the AFSL regime only apply when a business involves financial products or financial services. To take PSPs into the regulatory perimeter of the AFSL regime means that these payment functions will effectively become either financial products or financial services.
Transition issues
The Consultation Paper proposes the payments AFSL licensing requirements will come into force 18 months after the passage of legislation, to allow sufficient time for businesses to transition to the new arrangements. To obtain the benefit of the 18-month transitional relief, the Consultation Paper proposed that entities lodge an AFSL application within 6 months from the passage of legislation.
Further information on APRA’s licensing expectations on Major SVFs will be released once APRA commences its consultation process.
Next Steps
Building on Treasury's previous consultation, this Consultation Paper improves and develops the proposed payment regulatory regime in multiple aspects, including refining the scope of payment functions that fall under the regime.
This proposed framework will likely bring the majority of Australia’s payment industry participants, including those not currently requiring a licence, within the scope of the multi-layered regulation. Payment and payment related businesses should watch developments closely.
This consultation closes on 2 February 2024. Please reach out to us if you wish to discuss any of the above or to make a submission.
Written by Jake Huang, Michael Bacina and Steven Pettigrove
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