Background

Reforms to payments regulation in Australia have been long awaited by stakeholders and the broader industry. Indeed, the reforms follow several years of consultation, recommendation, and review. In particular, the Bill proposes to implement several of the recommendations made in the 2021 Review of the Australian Payment System. The PSRA updates form part of a wider reform package and we consider this to be the 'first tranche' of the Federal Government's Strategic Plan for Australia's Payment Systems, released on 7 June 2023.

In depth

Expanding definitions

The definition of 'participant' will now capture constitutional corporations which:

1. Operate, administers or participates in a payment system
2. Provide services that enable or facilitate the operation of or administration of, or participation in, a payment system

This contrasts with the current definition of a 'participant' that is a participant in the system in accordance with the rules governing the operation of the payment system, or that is an administrator of that system.

The expanded definition is likely to have the effect of covering a broader subset of entities involved in the payments value chain, even where there may only be an indirect relationship between the entity and a payment system. The Australian Government has suggested that the new definition of participant would extend to buy-now-pay-later products, digital wallet passthrough services, cash in transit services, and services that facilitate payment in crypto assets (such as payments stablecoins). However, the legislation itself remains product neutral, so it remains to be seen how particular participant categories will be subject to requirements under existing access regimes and whether a new range of requirements will be introduced.

'Payment System' will now include an arrangement, or a series of arrangements, under which transfers of funds are made, and includes any instruments or procedures that relate to that arrangement or series of arrangements. At present, 'payment system" means a funds transfer system that facilitates the circulation of money, and includes any instruments and procedures that relate to the system. Historically, this definition has been interpreted to limit its application to multilateral arrangements in which there are multiple participants that operate under a common set of rules. In contrast, the new definition is stated to also capture 'three party' (i.e., where a card scheme performs both acquirer and issuer roles) and 'closed loop' systems (i.e., a system that consists 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). Further, the new definition of "funds" expressly includes money and digital units of value (or unit of value) including digital currency. This means that the definition of a payment system will extend to systems for the transfers of digital currencies.

Ministerial designation power

Under the Bill, Treasury is given a new power to designate payment systems as 'special designated payment systems' if the Treasurer considers that doing so is in the national interest. It is envisaged that when designating a payment system based on the national interest, that the Treasurer may have regard to such factors as:

1. National security
2. Consumer protection
3. Data-related issues
4. Innovation
5. Cyber security
6. Anti-money laundering and counter-terrorism financing
7. Crisis management
8. Accessibility

This designation of payment systems by the Treasurer will be permissible where the RBA, as well as each of the 'nominated special regulators', have been consulted on the proposed designation. A nominated special regulator is a regulator which has been nominated by the Treasurer in relation to a special designated payment system. Prescribed regulators which may be nominated include the RBA, the Australian Securities and Investments Commission, the Australian Prudential Regulation Authority, and the Australian Competition and Consumer Commission.

It is important to note that the Treasurer must consider whether there are alternatives to the designation available under the PSRA or another Act, and also the outcome of the consultation with the RBA and each special regulator.

Increased maximum penalties

Under the Bill, the RBA is permitted to accept and enforce undertakings in relation to contraventions. The Bill has also increased the maximum penalties for failure to comply with a direction to participants from 50 to 100 penalty units per day of non-compliance for individuals, and from 250 to 500 penalty units per day of non-compliance for body corporates.

A civil penalty regime has also been proposed for a number of the PSRA provisions. Failure to comply with a direction to participants can attract 100 penalty units per day of non-compliance for an individual, and 500 penalty units per day of non-compliance for a body corporate. Failure to give RBA information can result in 200 penalty units per day of non-compliance for an individual, and 1,000 penalty units per day of non-compliance for a body corporate.

Next steps

Stakeholders may submit responses to this consultation up until 1 November 2023. For further information or if you have any questions about next steps, please do not hesitate to contact us.