How Australia will transform payments and crypto regulation

On 8 December 2021, the Federal Government released Transforming Australia’s Payments System, its response to recommendations in the Review of the Australian Payments System, the Senate Select Committee on Australia as a Technology and Financial Centre Final Report, and the Parliamentary Joint Committee Corporations and Financial Services Report on Mobile Payment and Digital Wallet Financial Services.  

The Government’s response involves amending current regulations relating to Australia’s payment systems and establishing new frameworks to address emerging technologies such as cryptocurrency.  

Transforming Australia’s Payments System follows recent rapid changes related to the digitisation of Australia’s payment industries. The use of cash has dramatically declined, from making up around two thirds of consumer payments a decade ago to less than a third now. Almost half of Australians now make payments using their mobile phone, and over 800,000 Australians have made transactions using digital assets, such as cryptocurrency, in the past three years, with a 63% increase from 2020 to 2021. 

Licensing  

A new tiered licensing framework for payments will be implemented as part of the Australian financial services licence regime and administered by ASIC. The licensing framework is intended to facilitate transparent access to payments systems. The implementation process will include the Reserve Bank of Australia (“RBA”) working with payment system providers to ensure that the design of the licensing regime facilitates transparent and easy access to payment systems and encourages competition and innovation. Consultation on the new framework will commence in early 2022. 

As a part of the new licensing system, licensees will be required to comply with obligations under the ePayments Code. The Government will also conduct consultations to determine how the ePayments Code should be updated. 

Payments system strategic plan 

The Government will develop a Payments System Strategic Plan. This plan will be consulted on in early 2022 and finalised by the middle of 2022. 

Regulators 

The Federal Government, through the Treasurer, will take on an enhanced leadership role in relation to the payments sector.  

The Federal Government will also introduce a Ministerial designation power to allow the Treasurer to respond to issues of national interest and issues that fall beyond the power of individual regulators.  

The Treasurer will be responsible for determining whether payment systems are subject to regulation by the RBA or other relevant regulators. The power will include the ability to direct regulators to develop regulatory rules and give binding directions to operators of, or participants in, payment systems. The Treasury will start consultation on the extent of the Ministerial power in early 2022. 

The Federal Government rejected a recommendation that the Treasurer should appoint a payments industry convenor.  

Regulation of payments systems will be functionally based, and the Treasury will establish a regulator payments forum with all relevant regulators to facilitate coordination and alignment in approach and policy aims.  

The RBA will be given the power to authorise industry standard setting bodies to ensure technical standards are consistent with broader strategic objectives.  

Token mapping 

The Treasury will conduct a token mapping exercise to identify the relevant characteristics of digital assets in collaboration with payments industry members. This process will commence in early 2022. 

Amending the Payment Systems (Regulation) Act 1998 (Cth) 

The Payment Systems (Regulation) Act 1998 (Cth) will be updated so that the RBA’s regulatory powers are not constrained by outdated definitions. The definition of a payment system will be expanded to include new and emerging digital technologies. 

Consultation on these changes will begin in early 2022 and will include consideration of digital wallet providers and buy-now-pay-later services. 

Tax 

The Government will take steps to clarify the tax and regulatory obligations of crypto businesses. The Board of Taxation will consider a suitable policy framework for the taxation of digital transactions and assets and report to the Government by the end of 2022. In the meantime, more detailed guidance will be published on the current taxation of crypto assets. 

De-banking 

De-banking refers to when fintechs, crypto-business and other users of crypto assets are denied access to banking services. The Government will task the Council of Financial Regulators with providing advice on policy options to the Government on the issue of de-banking by the middle of 2022. 

Decentralised autonomous organisations 

A decentralised autonomous organisation (“DAO”) is an organisation represented by rules coded into a computer program. The Federal Government will examine the potential of DAOs and how they can be incorporated into Australia’s existing legal and financial regulatory frameworks. The Treasury will start consultation on the appropriate regulatory structure for new corporate structures like DAOs in late 2022.  

Digital currency and digital currency exchanges 

The Treasury will consult on a licensing framework for digital currency exchanges and provide advice on this by mid-2022. A digital currency exchange is an individual or organisation that exchanges money for digital currency or vice versa. The consultation will address which digital currency exchanges are appropriate to be licensed by ASIC and what obligations related to licensing should entail. 

The Treasury will also examine the viability of an Australian retail central bank digital currency.  A central bank digital currency is a new digital form of cash that would likely be accessible via wallets on phones and other digital methods of storing money. If introduced a central bank digital currency would be issued by the RBA as an alternative to cash. This review, conducted in partnership with the RBA, will address the potential economic benefits, opportunities, and risks associated with introducing a central bank digital currency into Australia. 

Custody regime 

The Treasury will develop and consult on a possible custody or depository regime for digital assets. Consultation on possible regimes will commence in early 2022 and the Treasury will provide advice to the Federal Government on policy options by mid-2022. 

The travel rule 

The Financial Action Task Force (“FATF”) travel rule relates to the collection and disclosure of the personal data of participants in digital transactions. It requires financial institutions to include verified information about the originator (payer) and information about the beneficiary (payee) for wire transfers and other value transfers throughout the payment chain. This rule presents technology challenges for cryptocurrency service providers which do not presently have access to detailed beneficiary information. The Government response says that it will engage with industry and global partners to understand the risks associated with implementing the FATF standards, including the travel rule, into Australia’s AML/CTF regulations.  

Patrick Dwyer and Kathleen Harris 
Legal Directors 

Thanks to Anna Lombardo for assistance in preparing this article.