Legal development

Entering the future of regulation of Australias payment systems

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    What you need to know

    • 2022 is a critical year for the future of payments regulation, with Treasury consulting on a number of measures that will bring previously unregulated functions and services into the expanding regulated payments space. 
    • This includes the regulation of certain payments functions under the existing financial services licensing regime, and the need for digital currency exchanges to obtain a markets licence.
    • Consultation on these measures will commence in early 2022, with the Government expected to receive advice on all measures by end of 2022 (at the latest).

    What you need to do

    • Payments service providers and cryptocurrency should consider contributing to shaping the future of payments regulation in 2022 in one or more of the expected consultations. 
    • If you would like to discuss these changes or need assistance preparing submissions, feel free to contact Ashurst's financial regulatory team.

    The main takeaways for: 

    …payments service providers

    One of the most significant proposed reforms is a new payments licensing framework, to be administered by ASIC as part of the financial services licensing regime. This will be based on a list of regulated payments functions that are to be consulted on and developed – this could cover merchant acquirers, payment facilitators and accounts information service providers. 
    The licensee will also be required to comply with:

    • the ePayments Code;
    • common access requirements to be developed by the Reserve Bank of Australia (RBA); and
    • technical industry standards.

    …those dealing with digital assets / cryptocurrency

    Industry participants should take particular note of the following proposals: 

    • the need for digital currency exchanges to obtain a markets licence;
    • the introduction of a custody or depository regime for digital assets with minimum standards; and
    • the introduction of a new "Decentralised Autonomous Organisation" company structure.

    Background

    On 8 December 2021, the Government published its response to a number of recommendations raised in the following reports:  1

    • Australian Payments System Review Report (dated August 2021) – this had 15 recommendations, 14 of which the Government agreed to;  2
    • Senate Committee on "Australia as a Financial and Technology Centre" Final Report (dated October 2021) –this had 12 recommendations, 6 of which the Government agreed to;3  and
    • Parliamentary Joint Committee Corporations and Financial Services Report: Mobile Payment and Digital Wallet Financial Services (dated October 2021) – this had 14 recommendations, 8 of which the Government agreed to.4  Several of these recommendations overlapped with those in the Payment Systems Review.

    Importantly, some recommendations will directly affect current payments service providers and bring more participants into an expanded regulated payments space. Many recommendations were also directed towards enhancing the payments capability of Treasury and the regulators to ensure a coordinated and informed approach. In some cases, the Government commissioned further reviews, such as for de-banking and the tax treatment of cryptocurrency transactions. 

    What's in the pipeline for 2022?

    2022 will be a busy year for Treasury, the regulators and the payments industry. The Government has committed to specific timeframes relating to consultations and advice for the following measures. 

    By mid-2022

    • Treasury to advise the Government on its consultation on:
      • Expanding the definition of "payment system" in the Payment Systems (Regulation) Act 1998 (Cth) (PSR Act)
      • Introducing a new power for the Treasurer to designate "payment systems" and "participants" of designated payment systems where it is in the national interest to do so
      • Introducing a list of payments functions that require regulation
      • Establishing a market licensing regime for Digital Currency Exchanges
      • Establishing a custody or depository regime for digital assets with minimum standards
    • Consultation commencing early 2022 but no timeframe for conclusion provided:
      • Mandating the ePayments Code for all payments licensees
      • Mandating compliance with industry standards for payments licensees
    • Council of Financial Regulators to advise Treasury on policy responses related to de-banking.

    By end of 2022

    • Treasury to advise the Government on its consultation on:
      • Introducing a single, tiered payments licensing framework
      • Mandating common access requirements for payments licensees
      • Establish a new "Decentralised Autonomous Organisation" company structure
    • The Board of Taxation to provide advice to the Treasurer on CGT treatment of digital asset transactions
    • Treasury to advise the Government on its 'token mapping exercise'
    • Treasury to advise the Government on its review into the viability of a retail Central Bank Digital Currency in Australia

    We have also summarised the Government's response to each of the reviews in the tables below.

    Summary of Government's response to Payment Systems Review
    Recommendation
    Response and timing

    1. Consumers and business should be at the centre of policy design and implementation

    The Government agrees.
    2. The Government (through the Treasurer) should enhance leadership of the payments ecosystemThe Government agrees.
    3. The Government should develop a strategic plan for the payments ecosystem
    The Government agrees.
    4. Enhance Treasury's payments policy function
    The Government agrees.
    5. Treasury to appoint a payments industry convenorThe Government does not agree, on the basis that the enhanced Treasury function and engagement with industry experts will diminish the need for a convenor.
    6. Expand definition of "payment system" in the Payment Systems (Regulation) Act 1998 (Cth) (PSR Act)

    The Government agrees and notes it will 'modernise the relevant provisions' to ensure the RBA can respond appropriately to financial stability, efficiency or competition risks posed by new innovations.

    Timing: Treasury will commence consultation in early 2022, with advice to be provided to Government by mid-2022.

    7. Introduce a new power for the Treasurer to designate "payment systems" and "participants" of designated payment systems where it is in the national interest to do so

    The Government agrees and intends for this power to only be used in exceptional circumstances or for matters of national significance.

    Timing: Treasury will commence consultation in early 2022, with advice to be provided to Government by mid-2022.

    8. Introduce a list of payments functions that require regulation

    The Government agrees and notes that regulation should be functionally based.

    Timing: Treasury will commence consultation in early 2022, with advice to be provided to Government by mid-2022.

    9. Introduce a single, tiered payments licensing framework

    The Government agrees and notes that this would be based on the list of payment functions in the recommendation above and implemented as part of the existing AFSL regime.

    Timing: Treasury will commence consultation in early 2022, with advice to be provided to Government by the end of 2022.

    10. Mandate the ePayments Code for all payments licensees

    The Government agrees.

    Timing: The Government will commence consultation on this measure in early 2022.

     11. Mandating common access requirements for payments licensees

    The Government agrees, noting the RBA would need to work with payment system providers to ensure licensing design facilitates transparent and easy access, while encouraging competition and innovation.

    Timing: Treasury will commence consultation in early 2022, with advice to be provided to Government by the end of 2022.

    12. Mandating compliance with industry standards for payments licensees

    The Government agrees, noting that RBA will also be given the power to authorise industry bodies including the Australian Payments Network.

    Timing: The Government will commence consultation on this measure in early 2022.

    13. Treasury should better align payments regulator approaches and regulatory requirements

    The Government agrees, noting that Treasury will establish a regular payments forum with all the relevant regulators (including AUSTRAC) to ensure better coordination.

    Timing: The payments forum will be established in early 2022.

    14. Educating consumers and businesses about paymentsThe Government agrees
    15. The Government to leverage its position as a large customer of payments systems to support broader policy objectivesThe Government agrees.
    Summary of Government's response to Senate Committee on Australia as a Financial and Technology Centre Final Report 
    Recommendation
    Response and timing
    1. The Government to establish a market licensing regime for Digital Currency Exchanges

    The Government agrees (in principle), noting Treasury will consult on which functions of Digital Currency Exchanges should be licensed by ASIC.

    Timing: Treasury will commence consultation in early 2022 and provide advice to Government on policy options by mid-2022.

    2. The Government to establish a custody or depository regime for digital assets with minimum standards

    The Government agrees (in principle).

    Timing: Treasury will commence consultation in early 2022 and provide advice to Government on policy options by mid-2022.

    3. The Government to conduct a 'token mapping exercise' to determine best way to characterise digital asset tokens in Australia

    The Government agrees (in principle).

    Timing: Treasury to commence this process in early 2022, with advice to be provided to Government by end of 2022.

    4. The Government to establish a new "Decentralised Autonomous Organisation" company structure

    The Government agrees (in principle).

    Timing: Treasury to commence consultation in second half of 2022, with advice to be provided to Government by end of 2022.

    5. The 'travel rule' recommended by FATF be clarified and made fit for purpose under the AML/CTF RulesThe Government notes this recommendation, noting that Department of Home Affairs and AUSTRAC will ensure that any future legislative reforms are fit for purpose and meet the objectives of the FATF Standards.
    6. The Capital Gains Tax (CGT) regime be amended so that only digital asset transactions that genuinely result in a clearly definable capital gain or loss create a CGT event

    The Government notes this recommendation, noting that the Treasurer will task the Board of Taxation to commence a review into the appropriate taxation policy framework for digital transactions and assets 

    Timing: The Board of Taxation to provide advice to Treasurer by the end of 2022.

    7. The Government to amend relevant legislation so that businesses engaging in digital asset 'mining' and related activities in Australia receive a company tax discount of 10% if they source their own renewable energy for such activitiesThe Government does not agree.
    8. Treasury to lead a policy review of the viability of a retail Central Bank Digital Currency (CBDC) in Australia

    The Government agrees (in principle).

    Timing: Treasury to lead a review into the viability of CBDC in Australia in the second half of 2022, with advice to be provided to Government by end of 2022.

    9. The Council of Financial Regulators to set up a scheme to address the due diligence requirements of banks by June 2022

    The Government notes these recommendations.

    Timing: Treasury to issue a terms of reference for the Council of Financial Regulators to consider policy responses to de-banking, and request advice by mid-2022.

    10. The Government to develop a clear process for businesses that have been de-banked
    11. Common access requirements for the New Payments Platform should be developed by the RBAThe Government agrees to this recommendation, which overlaps with recommendation 11 of the Payment Systems Review.
    12. The Government to establish a Global Markets Incentive to replace the Offshore Banking Unit (OBU) regime by end of 2022The Government notes this recommendation, noting Treasury will continue to consult with industry on alternative measures to support the OBU sector.
    Summary of Government's response to Senate Committee on Australia as a Financial and Technology Centre Final Report
    Recommendation
    Response and timing
    1. Treasury to enhance skills, capacity and expertise in payments space
    The Government agrees.
    2. Treasury to enable regulation of stored value facilities in line with recommendations made by Council of Financial RegulatorsThe Government agrees, noting that the Government will consult on a payments licensing framework, consistent with recommendation 9 of the Payment Systems Review. This will also take into account conclusions from the Council of Financial Regulators' Regulation of Stored-value facilities in Australia. 5
    3. Australian Payments Network to voluntarily provide aggregated information on its members’ non-compliance to relevant regulatorsThe Government notes this recommendation, noting that it will consult on whether it should be mandatory to comply with industry standards set by Australian Payments Network and other bodies as a licence condition, as part of consulting on the proposed licensing regime.
    4. Treasury to consult on effectiveness of payments system self-regulation and table in Parliament a review by end of 2023The Government notes this recommendation, noting this was covered in the Payment Systems Review and it was concluded that industry self-regulatory bodies remain best placed to set technical rules and standards for payment system participants.
    5. ASIC to continue to monitor the ePayments Code and update it as necessaryThe Government agrees (in principle), noting this will be covered in consultation on the payments licensing regime proposed under the Payments Systems Review.
    6. Australian Finance Industry Association continues to monitor the effectiveness of Buy Now Pay Later Code of Practice, and update it as necessary
    The Government notes this recommendation.
    7. ASIC be given the power to make the ePayments code mandatory for all industry participantsThe Government agrees (in principle), noting this will be covered in consultation on the payments licensing regime proposed under the Payments Systems Review.
    8. Expand definition of "payments systems" under the PSR ActThe Government agrees, noting this is covered under recommendation 6 of the Payment Systems Review.
    9. Treasury to consult with relevant agencies to provide policy advice on the merits of regulating payment platform providersThe Government agrees, noting this is covered under the recommendations of the Payment Systems Review.
    10. ACCC to investigate Apple's restrictions on direct third party access to chips that enable mobile payments on its devices from a competition perspectiveThe Government notes this recommendation, as it is a matter for the ACCC as the independent regulator responsible for this matter.
    11. Treasurer to direct the ACCC to conduct an in-depth examination of merits of different approaches to enabling least-cost routing on mobile transactionsThe Government notes this recommendation.
    12. Payment systems make their fee structures more transparent to consumers, merchants and regulatorsThe Government agrees, noting the RBA will improve transparency of payment costs for merchants and provide education material to help merchants understand available pricing options.
    13. The Senate Committee considers an inquiry into the Buy Now Pay Later industry 18 months after the industry Code of Practice came into effectThe Government notes this recommendation, as it notes it is a matter for the committee.
    14. ASIC regularly update its MoneySmart website to account for changes in the payments sectorThe Government agrees.

    What should you do now?

    Following the completion of multiple reviews, the Government will consult on specific recommendations that will significantly increase payments regulation in Australia. If you perform payments services or functions, you may wish to take this opportunity to contribute to the future of regulation in this space.

    If you would like to discuss these changes or need assistance preparing submissions in the coming year, Ashurst's financial regulatory team would be happy to assist.

    AuthorsHong-Viet Nguyen, Partner and Helen Yu, Senior Associate


    1. https://treasury.gov.au/sites/default/files/2021-12/p2021-231824_1.pdf
    2. https://treasury.gov.au/publication/p2021-198587
    3. https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Financial_Technology_and_Regulatory_Technology/AusTechFinCentre/Final_report
    4. https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Corporations_and_Financial_Services/Mobileanddigitalwallet/Report
    5. https://www.cfr.gov.au/publications/policy-statements-and-other-reports/2020/regulation-of-stored-value-facilities-in-australia/pdf/report.pdf

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.

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