On 7 June 2023, Treasury commenced consultation on the most significant reforms to Australia’s payments system in 20 years, releasing a Strategic Plan for Australia’s Payments System, a Consultation Paper on Reforms to the PSRA, and a Consultation Paper on Payments System Modernisation (Licensing: Defining Payment Functions).
The licensing consultation paper in particular proposes a radical overhaul of the licensing and conduct framework for participants in the payments industry, based around a list of payment functions and managed principally by ASIC. Every participant should:
- reassess whether and what type of licence they may require; and
- consider the impact of the new conduct obligations on their business.
Set out below is a summary of the proposals relating to licensing and conduct. Further consultation on the regulatory obligations that will apply under the new licensing framework will take place later in 2023 and legislation will be introduced in 2024. It is widely expected that payment service providers (PSPs) will be granted a transitional period before full compliance with the new licensing and conduct regime is required.
What functions will be regulated?
Consistent with approaches taken in jurisdictions such as the UK, Singapore and Canada, the overarching principle is that the new licensing framework will regulate the broad and diverse population of PSPs involved in a payments value chain based on the specific payment function(s) that they perform.
The following are the payments functions that the Government proposes to regulate (although the precise language to describe these functions will be refined as part of the legislative process).
Stored value facilities
- Issuance of payment accounts or facilities: Providers of payment accounts or facilities that store value for more than two business days and can be used for the purpose of making payments.
- Issuance of payment stablecoins: Issuers of payment stablecoins that store value and control the total supply of payment stablecoins through issuance and redemption activities.
Payment facilitation services
- Issuance of payment instruments: Issuers of a payment instrument that is unique to a customer and can be used to make a transaction or provide instructions on their account or facility.
- Payment initiation services: Services that allow the instruction of a payment transaction at the request of the customer (payer or payee) with respect to a payment account or facility held at another PSP, or from some other source of value or a credit facility.
- Payment facilitation, authentication, authorisation and processing services: Services that enable payment instructions to be transferred (facilitation), provide the verification of customer credentials (authentication), payment authorisation, and/or processing of payment instructions.
- Payments clearing and settlement services: Services for clearing or settlement of payment obligations or for the exchange of payment messages for the purposes of clearing or settlement of payment obligations, including clearing and/or settling account to account payments.
- Money transfer services: Services that send or receive money overseas or within Australia for a customer, including through the creation of a payment account or without a payment account.
What exemptions will be removed and retained?
The government intends to remove:
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The government intends to retain:
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Example
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What regulatory obligations will be imposed?
Treasury intends that all PSPs will hold a “base licence” with their authorised functions specified on the licence.
Treasury has provided the following high-level overview of the obligations that may apply:
Proposed obligations
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INDIVIDUAL
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Example
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Storing value
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SVFs will need to:
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Consumer facing PSPs not storing value
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Obligations that address consumer protections (e.g., mandating a revised ePayments Code for unauthorised transactions and mistaken payments, requirement to obtain an AFSL). Obligations that address operational risks related to payments technologies (e.g., mandatory industry technical standards to ensure interoperability and security). |
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Non-consumer facing PSPs that do not store value
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Obligations that address operational risks related to payments technologies (as above). |
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Payments clearing and settlement
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Common access requirements, to address financial and operational risks. |
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Treasury will consult on this in more detail later in 2023. However it will use feedback on the risks associated with each payment function to guide the type of obligations that are appropriate to impose on each payment function. In particular, Treasury is considering whether each of the following categories of risk arise as a result of the provision of each of the payment functions:
- Financial risk (solvency or liquidity). For example, would a customer lose funds stored with a financial institution or would settlement of payment obligations not occur?
- Operational risks. For example, would a technical malfunction, operational mistake or cyber risk lead to settlement risk or non-completion of transactions?
- Misconduct risks. For example, should the PSP have controls to detect misuse of their services, mis-selling or other types of misconduct?
Who will administer the licensing process?
Although the Payment Systems Review recommended that ASIC be the single point of contact, this issue is unresolved. It may be the case that ASIC manages all PSP licensing applications but PSPs seeking a Major SVF licence will need to also approach APRA. The consultation paper is silent on enrolment/registration processes currently managed by AUSTRAC.
As an alternative to a “single point of contact”, Treasury suggest that a “single source of guidance” or website portal on licensing requirements and processes could be provided.
Next steps
Please do get in touch if you would like to discuss how we can help you prepare for and manage the potential impact of the upcoming reforms on your business.
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