Treasury has released a Payments System Review Issues Paper as the first step in the Payments System Review. Background.

The review will assess:

• The current structure of the governance and regulation of the payments system to assess whether it is fit-for-purpose, including whether the regulatory framework adequately accommodates new and innovative systems and the effectiveness of the current structure in implementing government policy;
• How to create more productivity-enhancing innovation and competition in the payments system, including in relation to the pace and manner in which the New Payments Platform is being rolled out and enhanced by industry;
• Ways to improve the understanding of businesses and consumers of alternative payment methods;
• Whether government payment systems, including payments to citizens, are agile and can take advantage of new payments functionality, to enhance service delivery; and
• Global trends and how Australia should respond to these trends to ensure that it continues to remain internationally competitive.

Stored-value Facilities
Separately the Government has released the Council of Financial Regulators’ (CFR) final report (Regulation of Stored-value Facilities in Australia) of its review into the regulation of stored value facilities (SVFs) in Australia. The final report includes 11 recommendations aimed at simplifying and modernising regulatory arrangements for SVFs.

The CFR’s key recommendations are:

• Recommendation 1: Stored-value facilities (SVFs) should be introduced as a new class of regulated product, replacing ‘purchased payment facilities’ in the regulatory framework. Regulation of SVFs should be graduated and commensurate with risks to consumers.
• Recommendation 2: Certain SVFs (and other payment products) that pose limited risk to consumers – such as small and/or limited-purpose facilities – should continue to be largely exempt from most regulatory requirements.
• Recommendation 3: Issuers of payment products that hold client funds for only a short period of time for the purpose of facilitating a payment should be required to hold an Australian Financial Services (AFS) licence from the Australian Securities and Investments Commission (ASIC) and comply with the requirements of an updated ePayments code.
• Recommendation 4: ASIC should be given the power to make compliance with the ePayments code mandatory, such as through a rule-making power.
• Recommendation 5: The Australian Prudential Regulation Authority (APRA) and ASIC should be responsible for regulating and licensing SVF providers, consistent with their respective mandates for prudential supervision and consumer protection. The Reserve Bank of Australia (RBA) should no longer be involved in regulating individual providers of SVFs, helping to streamline regulation in this segment of the market.
• Recommendation 6: APRA should be responsible for prudential supervision of large SVFs that enable consumers to hold a significant amount of funds for long periods and to withdraw their funds on demand in Australian currency (e.g. by transferring funds to their bank account). These facilities are likely to offer similar functionality as a bank deposit and should be subject to the highest level of regulatory oversight within an updated regulatory framework for SVFs.
• Recommendation 7: APRA should review its existing PPF prudential framework, with a view to introducing requirements for SVFs that are simpler, more targeted to the key risks posed by such entities and, where appropriate, better aligned with international approaches.
• Recommendation 8: ASIC should be responsible for regulating SVFs that do not meet the criteria for APRA prudential supervision. In addition to holding an AFS licence, providers of these products should be subject to additional requirements administered by ASIC to ensure the safety of consumers’ funds.
  In particular, the Corporations Act 2001 (Corporations Act) should be amended to ensure that protections on client money loaded in to SVFs operate effectively and client funds cannot be used as the provider’s working capital.
• Recommendation 9: AFS licensees that are subject to the amended client money protections should be required to report to ASIC on the amount of stored value that is held and transaction flows (e.g. aggregate amount in and out during a period).
• Recommendation 10: A revised regulatory framework should incorporate a mechanism to ‘designate’ certain facilities as being subject to APRA supervision in the public interest (e.g. on the basis of financial system risk considerations). The CFR should develop principles to guide such decisions, which could be vested in the Minister or exercised jointly by APRA and ASIC.
• Recommendation 11: The CFR agencies should further consider additional measures to improve the clarity and transparency of SVF regulation for consumers and regulated entities.

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Author: David Jacobson
Principal, Bright Corporate Law
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About David Jacobson
The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.