Earlier this month the government released a raft of documents on the future of payments regulation in Australia. These documents are:
- A Strategic Plan for Australia’s Payments System – “Strategic Plan” (available at: https://treasury.gov.au/publication/p2023-404960)
- the Payments System Modernisation (Licensing: Defining Payment Functions) – “Consultation Paper” (available at: https://treasury.gov.au/consultation/c2023-403207)
- the Reforms to the Payments Systems (Regulation) Act 1998 Consultation Paper – “PSRA Consultation” (available at: https://treasury.gov.au/consultation/c2023-403206)
In this Blog Post we take a deeper look at some of the key proposals from the Consultation Papers and what they will mean for operators in the payments ecosystem.
Payment Functions to be licenced
The Consultation Paper sets out a number of different payment functions that Treasury is considering regulating. Any entity providing one of these functions would need to hold an AFSL. Each function is likely to be a separation function.
These current list of proposed payment functions is:
- Issuance of payment accounts or facilities
- Issuance of payments stablecoins
- Issuance of payment instruments
- Payment initiation services such as recurring payment services and third-party payment initiation services
- Payment facilitation, authentication, authorisation and processing services such as merchant acquiring and card issuing
- Payment clearing and settlement services
- Money transfer services
There is further detail as to what Treasury considers these different functions to be, however the upcoming consultation process will need to clarify these functions and define any relevant exceptions.
Many of these functions have not previously been regulated, such as the provision of card acquiring services or other services involving the receipt of money.
As the proposal is to add these functions as authorisations under an AFSL, existing AFSL holders will need to apply for variation. Providers without an AFSL will need to apply. This can be up to a 9 to 12 month, but it is possible that ASIC will develop a streamlined process for managing variations and applications of this kind.
The consultation paper also flags that it may be appropriate to switch off some of the typical AFSL requirements for some payment functions. This will be a matter for further consultation.
Regulating stored value facilities
From the above list, issuing “stored value facilities” will replace the current concept of “non-cash payment facilities”. This will capture a range of products including prepaid cards and digital wallets. It is likely that these facilities will be regulated as financial products, while other payments functions will be regulated as services.
This means stored value facility issuers will need to prepare PDSs, comply with client money provisions and maintain minimum capital requirements.
The Consultation Paper also divides SVFs into “Major SVFs” and “Standard SVFs”.
Major SVFs are facilities that store more than $50 million in customer funds in total, offer individual customers the ability to store more than $1,000 for more than 31 days and allow their customers to redeem their funds on demand in Australian currency. The intention is for these SVFs to be dual-regulated by ASIC and APRA. The APRA overlay is likely to require some form of APRA licence and additional regulatory capital requirements.
Any SVFs which are not Major SVFs would be Standard SVFs and would continue to be solely regulated by ASIC.
Feedback in respect of the Consultation Paper is open until 19 July 2023 via firstname.lastname@example.org.
Treasury is also consulting on other strategic changes to the payments landscape, including in relation to use of cheques, the BECS payment systems and a range of other issues.
Legislation is not expected to be introduced until next year, with a transition period after that likely for some of the more major reforms.