The Australian government is consulting on exposure draft legislation to amend payment systems regulation in Australia. The proposed legislation implements the proposals in the Government’s Consultation Paper on Reforms to the Payment Systems (Regulation) Act 1998 issued in June 2023 (Consultation Paper).
Proposed changes
The Exposure Draft of the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023: Amendment of the Payment Systems (Regulation) Act 1998 (Bill) proposes a number of significant amendments to the Payment Systems (Regulation) Act 1998 (Cth) (PSR Act) which will alter its scope and operation.
Specifically, the Bill proposes to:
- expand the definition of 'payment system' to cover a broader set of payment arrangements (including those involving digital assets) and to include arrangements that facilitate a payment being made
- broaden the definition of 'participant' to capture a greater number of entities involved in the payment chain, including those who play a role in facilitating or enabling payments to be made through a payment system
- grant the Minister the power to designate a payments system as a 'special designated payments system' if the Minister considers that is in the national interest – noting that the Reserve Bank of Australia (RBA) has a similar power to designate a payment system if it is in the public interest (which will remain)
- grant the Minister the power to nominate a regulator to perform regulatory powers and functions in relation to a special designated payments system (nominated regulator), including the imposition of an access regime, specific standards or directions on participants
- grant the RBA (but oddly not nominated regulators) the power to enter into court enforceable undertakings with a participant in relation to a breach of the PSR Act, and
- introduce new penalties for failing to comply with a regulator’s direction (including civil penalties) and new civil penalties for failure to provide information requested by a regulator.
The Bill only proposes changes to the regulation of payment systems. No changes are proposed in relation to the regulation of purchased payment facilities under Part 4 of the PSR Act.
To help you understand the proposed changes, we have prepared a marked-up version of the current version of the PSR Act showing the changes proposed by the Bill.
The current regime
The PSR Act gives the RBA the ability to designate a payment system if the RBA considers it is in the public interest to do so. Once designated, the RBA can regulate the payment system by imposing an access regime or making standards which must be complied with. The RBA has only used its designation power under the PSR Act sparingly to date. The only designated payment systems currently are Mastercard, Visa and the EFTPOS system.
Broadening the remit
Broader definition of 'payment system'
The Bill proposes to expand the definition of 'payment system' to cover a broader set of payment arrangements. Payment systems will not be limited to the circulation of ‘money’ but will extend to any arrangement under which fund transfers are made, including transfers of ‘digital units of value, including digital currency’.
The amendments are intended to extend the regime beyond economy-wide payment systems to also enable designation of ‘three party’ or ‘closed loop’ systems, for example:
- systems that consist only of multiple bilateral arrangements between an entity and the payers and payees which use that system, with no interactions between the payers and payees
- systems where one entity – a card scheme – performs both the acquirer and issuer roles.
The Explanatory Memorandum to the Bill (EM) states that systems like American Express and Diners Club would be capable of meeting the updated definition of ‘payment system’, although it is not clear whether they would be designated.
Broader definition of 'participant'
The regime will also expand the definition of 'participant' to capture any entity that plays a role in facilitating or enabling payments to be made through a designated payment system. An entity that constitutes a 'participant' must comply with any access regime or standards that apply to the payment system.
The new definition of ‘participant’ is intended to capture all entities that play a role in the payment value chain including intermediaries, whether or not they have a direct relationship with the payment system, including providers of digital wallets. The EM states that this would extend to providers of buy now, pay later (BNPL) products, digital wallet passthrough services (e.g. ApplePay and Google Wallet), cash in transit services and crypto payment facilities including payments stablecoins), where they provide services through designated payment systems (such as Visa or Mastercard).
Why is the Minister now in the picture?
The 2021 Farrell Review into the regulatory architecture of Australia’s payment system (Farrell Review) recommended giving the Treasurer the power to designate payment systems in addition to the RBA. This is because the RBA can only designate a payment system under the PSR Act if it is in the 'public interest'.This is limited to considering whether among other things the system could materially cause or contribute to increased risk in the financial system. Issues such as national security or consumer protection are not enough on their own for the RBA to designate a payments system.
Is the Minister's designation power a blank cheque?
The Bill makes no changes to the RBA's existing power to designate payment systems. But the Bill does grant the Minister a separate power to designate a payment system if it considered to be in the national interest to do so.
Before the Minister designates a payment system, they must:
- consult with the RBA and each prescribed special regulator (the EM indicates the special regulators are likely to be ASIC, APRA and the ACCC) – the Consultation Paper states that the Minister should consult with affected parties but there is no requirement to this effect in the Bill
- consider whether there are alternatives to the designation – i.e. whether alternative legislative regimes are available and would be more suitable, and
- consult with the nominated regulator (i.e. the regulator nominated by the Minister to be responsible for regulating the payment system) (this could be the RBA or one of the special regulators) and be satisfied the nomination is consistent with other functions of the regulator.
There is no definition of 'national interest' in the Bill. The EM indicates that the matters the Minister may consider include:
- national security
- consumer protection
- data-related issues
- innovation
- cyber security
- AML/CTF
- crisis management
- accessibility.
This is similar to the difference between the Minister’s power and that of the RBA identified by the Farrell Review: