On 11 October 2023, Treasury released a draft bill and explanatory memorandum for industry comment on proposals to update the Payment Systems (Regulation) Act 1998 (Cth) (PSRA). The PSRA provides powers to the Reserve Bank of Australia (RBA) to regulate purchased payment facilities and payment systems. The PSRA has been subject to significant review in recent years, with recommendations to expand the definition of payment system receiving support from both the former current Government. These proposals come amidst calls to ensure Australia’s payments regulatory framework remains fit for purpose and addresses emerging payment risks.
The draft bill proposes to expand the PSRA’s coverage across key definitional areas and introduce new ministerial powers.
| Current law | New law |
|---|---|
| The definition of ‘payment system’ is limited to the circulation of money and can also be interpreted to be limited to multilateral arrangements in which there are multiple participants that operate under a common set of rules. Current definition: Payment system means a funds transfer system that facilitates the circulation of money, and includes any instruments and procedures that relate to the system. | The proposed new definition of ‘payment system’ will cover a broader set of arrangements, including payment systems that use non-monetary digital assets for payments (including digital units of value and digital currency) or provide services that facilitate a payment being made, and ‘three party’ or ‘closed loop’ systems. Proposed definition: Payment system: (a) means an arrangement or series of arrangements under which transfers of funds are made; and (b) includes any instruments and procedures that relate to that arrangement or series of arrangements. |
| The definition of ‘participant’ can be interpreted to be limited to entities that are formal members of a designated payment system that are subject to the rules governing the operation of the system. Current definition: Participant in a payment system means: (a) a constitutional corporation that is a participant in the system in accordance with the rules governing the operation of the system; or (b) a constitutional corporation that is an administrator of the system. | The proposed new definition of ‘participant’ will capture all entities involved in the payments value chain, including entities with or without a direct relationship to a payment system. This would extend to BNPL products, pass through digital wallet services (eg, ApplePay), cash in transit services and services that facilitate payment in crypto assets (eg, stablecoins), where such entities provide services to designated payment systems. Proposed definition: Participant in a payment system means: (a) a constitutional corporation that operates, administers or participates in a payment system; or (b) a constitutional corporation that provides services that enable or facilitate the operation or administration of, or participation in, a payment system. |
| No equivalent. | The RBA will be able to accept enforceable undertakings relating to matters in relation to which the RBA has a function or power under the PSRA, regulations or other legislative instrument made under the PSRA. |
| Only the RBA has the power to designate a payment system (only if it is in the public interest to do so) and perform regulatory powers and functions in relation to that designated payment system. | In addition to the RBA, the Minister will have the power to designate a payment system if they consider it is in the national interest to do so. |
| No equivalent. | The Minister will have the power to nominate an entity to perform regulatory powers and functions in relation to a designated payment system. The Minister will be able to direct nominated regulators about the performance of functions and powers under the PSRA. The nominated regulator may impose an access regime on participants and determine standards to be complied with by participants in a designated payment system. |
| No equivalent. | The PSRA will contain a civil penalty framework that relies on the standard framework from the Regulatory Powers Act to the extent possible. |
| Treasury considers the maximum penalties for certain criminal offences in the PSRA do not reflect the seriousness of the misconduct. Current maximum: 50 penalty units per day of noncompliance (250 penalty units for body corporates). | Treasury proposes increasing the maximum penalties for certain criminal offences in the PSRA. Proposed maximum: 100 penalty units per day of noncompliance (500 penalty units for body corporates). |
Current law
New law
The definition of ‘payment system’ is limited to the circulation of money and can also be interpreted to be limited to multilateral arrangements in which there are multiple participants that operate under a common set of rules.
Current definition: Payment system means a funds transfer system that facilitates the circulation of money, and includes any instruments and procedures that relate to the system.
The proposed new definition of ‘payment system’ will cover a broader set of arrangements, including payment systems that use non-monetary digital assets for payments (including digital units of value and digital currency) or provide services that facilitate a payment being made, and ‘three party’ or ‘closed loop’ systems.
Proposed definition: Payment system: (a) means an arrangement or series of arrangements under which transfers of funds are made; and (b) includes any instruments and procedures that relate to that arrangement or series of arrangements.
The definition of ‘participant’ can be interpreted to be limited to entities that are formal members of a designated payment system that are subject to the rules governing the operation of the system.
Current definition: Participant in a payment system means: (a) a constitutional corporation that is a participant in the system in accordance with the rules governing the operation of the system; or (b) a constitutional corporation that is an administrator of the system.
The proposed new definition of ‘participant’ will capture all entities involved in the payments value chain, including entities with or without a direct relationship to a payment system. This would extend to BNPL products, pass through digital wallet services (eg, ApplePay), cash in transit services and services that facilitate payment in crypto assets (eg, stablecoins), where such entities provide services to designated payment systems.
Proposed definition: Participant in a payment system means: (a) a constitutional corporation that operates, administers or participates in a payment system; or (b) a constitutional corporation that provides services that enable or facilitate the operation or administration of, or participation in, a payment system.
No equivalent.
The RBA will be able to accept enforceable undertakings relating to matters in relation to which the RBA has a function or power under the PSRA, regulations or other legislative instrument made under the PSRA.
Only the RBA has the power to designate a payment system (only if it is in the public interest to do so) and perform regulatory powers and functions in relation to that designated payment system.
In addition to the RBA, the Minister will have the power to designate a payment system if they consider it is in the national interest to do so.
No equivalent.
The Minister will have the power to nominate an entity to perform regulatory powers and functions in relation to a designated payment system.
The Minister will be able to direct nominated regulators about the performance of functions and powers under the PSRA. The nominated regulator may impose an access regime on participants and determine standards to be complied with by participants in a designated payment system.
No equivalent.
The PSRA will contain a civil penalty framework that relies on the standard framework from the Regulatory Powers Act to the extent possible.
Treasury considers the maximum penalties for certain criminal offences in the PSRA do not reflect the seriousness of the misconduct.
Current maximum: 50 penalty units per day of noncompliance (250 penalty units for body corporates).
Treasury proposes increasing the maximum penalties for certain criminal offences in the PSRA.
Proposed maximum: 100 penalty units per day of noncompliance (500 penalty units for body corporates).
While these proposals are not unexpected in the context of recent reviews and Government signalling, there has been considerable backlash to the proposals by technology and payment adjacent providers that would be captured under the expanded regime. However, implementation of this bill would not have an immediate material impact on emerging payment systems, as they must be designated prior to regulation being imposed. Designation of a payment system does not, of itself, impose any obligations on a participant in the designated system. Obligations are imposed by the RBA through access regimes and standards. This structure will remain under the proposed new law.
Treasury’s consultation closes on 1 November 2023. Please reach out should you wish to discuss or make a submission.