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Australia’s Treasury has opened a consultation on amendments to the Payment Systems (Regulation) Act 1988 (PSRA), in what some have called the "biggest overhaul" of the country’s payment rules in 35 years.
The Treasury’s proposals aim to ensure that Australia’s regulators can address new and emerging risks to the country’s payment system.
The proposals include updating the PSRA to expand the definitions of “payment system” and “participant”, so that the Reserve Bank of Australia (RBA) can regulate new payment systems such as digital wallet providers and buy now, pay later (BNPL) firms.
The changes would also introduce a new ministerial “designation” that would allow payments services and platforms that present risks of “national significance” to be subject to additional oversight.
In addition, new amendments would introduce civil penalty provisions and enforceable undertakings, and would increase the PSRA’s existing criminal penalties.
In June, when a previous consultation on PSRA amendments was published, the Australian Banking Association (ABA) welcomed the move, calling it the “biggest overhaul” of Australia’s payment system rules in 35 years.
“The proposed changes will help ensure clear consumer protections apply no matter who is processing your payment, and that the security of customers' personal and financial information is maintained,” said ABA CEO Anna Bligh.
“By giving the RBA greater oversight and standard-making powers over digital wallets and other forms of payments infrastructure, these regulatory changes can also help to maintain the security and efficiency of our payments system.”
The Treasury has published an exposure draft detailing the exact amendments that are proposed to the PSRA, alongside an explanatory note to help firms navigate the 33 pages of legal text.
Firms have until November 1, 2023 to submit their comments to the Treasury.
Existing framework too narrow
At present, the RBA is the only entity provided with regulatory powers or functions under the PSRA.
Under the PSRA, the RBA has the power to “designate” a payment system to impose access and standards requirements on participants in that payment system.
The RBA can also provide guidance to participants in designated payment systems and can arbitrate disputes between participants.
The amendments put forward this month follow the publication of the Treasury's final report of the Review of the Australian Payments System.
Published in August 2021, the final report found that the RBA’s existing regulatory powers under the PSRA may not adequately capture the full suite of systems and participants within today’s payments ecosystem.
In particular, the review found that the PRSA’s existing definitions of “payment system” and “participant” limited the RBA's ability to respond to efficiency, competition and financial stability risks.
Similarly, the existing designation system was found to lack the flexibility to designate payment systems for reasons beyond financial stability, efficiency and competition.
It also limited the ability of other agencies and the Treasury minister to engage with and coordinate payments-related matters.
Broadening the scope
The bill put forward by the Treasury would ensure that the key findings of the review are incorporated into the PSRA.
Currently, for example, the PRSA’s definition of “payment system” is limited to the circulation of money and multilateral arrangements in which there are multiple participants that operate under a common set of rules.
In contrast, the new definition of “payment system”, if adopted, would cover a broader set of arrangements.
These include payment systems that use non-monetary digital assets, services that facilitate a payment being made, and “three-party” or “closed loop” systems.
With regard to “participants”, the PSRA’s current definition is limited to entities that are formal members of a designated payment system and are subject to the rules governing that system.
However, the proposed definition of “participant” would capture all entities involved in the payments value chain, including entities with or without a direct relationship to a payment system.
Finally, under the current PSRA, only the RBA has the power to designate a payment system, and only if it is in the public interest to do so.
Under the new proposals, the Treasury minister would have the power to designate a payment system if he or she considers that it is in the national interest to do so.
The minister then would also have the power to nominate a “special regulator” to perform regulatory powers and functions over the designated payment system.
As per the explanatory note provided by the Treasury, other prescribed special regulators will likely include the Australian Securities and Investments Commission (ASIC), the Australian Prudential Regulation Authority (APRA) and the Australian Competition and Consumer Commission (ACCC).
