The Payments System Review final report

The final report of the Payments System Review was released on 30 August 2021.

The review was commissioned by the Federal Government in September 2020 and tasked with reviewing the regulatory architecture of the Australian payments system. The review was headed by Mr Scott Farrell. 

Recommendations

The final report makes 15 recommendations. We have summarised them below. 

The Treasurer has announced that the Government will carefully consider and consult on the recommendations before finalising a response by the end of the year.

1. Consumers and businesses should be at the centre of policy design and implementation. The regulatory architecture should also support three other key principles: strategy, safety and simplicity.

2. Leadership. The payments ecosystem needs enhanced leadership, vision and oversight and the government, through the Treasurer, is best placed to provide this.

3. Strategic plan. The government should develop a strategic plan for the payments ecosystem.

4. Treasury’s payments policy function. The Treasury’s payments policy function should be enhanced and resourced to support the Treasurer’s enhanced leadership role.

5. Payments industry convenor. The Treasurer should appoint a payments industry convenor to collaborate with regulators and industry to develop the strategic plan, identify key issues, coordinate responses, and provide strategic advice to the Treasurer on payments related matters.

6. Expand definition of payment system in the PSRA. The definition of a payment system in the Payment Systems (Regulation) Act 1998 (“PSRA”) should be expanded to broaden the ability of the Reserve Bank of Australia (“RBA”) to designate new and emerging payment systems under the PSRA.

7. Ministerial designation power. The Treasurer should be given power to designate payment systems and participants of designated payment systems where it is in the national interest. The power would include the power to direct regulators to develop rules and to give binding directions to payments system operators and participants.

8. A list of payment functions that require regulation. A defined list of payment functions that require regulation should be developed and used consistently across all payments regulation. 

9. A single, tiered payments licensing framework. There should be a single payments licensing framework with separate authorisations for payments facilitation services and for stored value facilities, and with two tiers of authorisation based on the scale of the activity performed by the payment service provider. The licence would be issued by ASIC, but ongoing obligations under different authorisations under the licence would remain with the applicable regulators.

10. Mandatory ePayments Code. The ePayments Code should be mandatory for holders of the payments licence. 

11. Transparent access to payment systems. The common access requirements for payment systems should form part of the payments licence. Common access requirements would be developed by the RBA.

12. Align industry standards. Compliance with technical standards set by authorised industry bodies should be mandatory for payments licence holders. The RBA would have authorisation and oversight of industry standard setting bodies. Standards should be aligned with broader payments policy objectives.

13. Better align regulator approaches and regulatory requirements. The enhanced Treasury function should take steps to improve coordination between payments regulators, and the alignment of payments regulatory requirements, including with respect to AML/CTF issues.

14. Educating consumers and businesses. Improved payments capability should be a goal of the refresh of the National Financial Capability Strategy. Regulators with industry should develop a business education program in relation to payments.

15. Leverage the position of government as a large customer. The government should use payment systems that best serve the needs of Australians and leverage its position as a large user of the payment ecosystem to support broader payments policy objectives.

Challenges

The report also identifies some current challenges that are critical for the payments regulatory architecture, but the report does not take a recommended position on these matters. These challenges include:

• new technology and business models, including digital wallets and buy-now pay-later;

• new forms of money, including central bank digital currencies, cryptocurrencies, and global stablecoins;

• financial inclusion (access to payments services), including de-banking, the severity of penalties for AML/CTF breaches, ambiguous obligations under AML/CTF laws, consumer inclusion, and cash distribution;

• developments in the data ecosystem, including the Consumer Data Right and digital identity; and

• international interoperability of payment mechanisms and systems.

Patrick Dwyer and Kathleen Harris

Legal Directors