Major overhaul of Australia’s payment system regulation: key changes and timeline
Australia’s payments regulatory landscape is set for significant change, with Treasury releasing draft legislation that will reshape how payment service providers (PSPs) are regulated.
The proposed reforms introduce new licensing, prudential and compliance obligations, signalling a more comprehensive and risk-based framework for the sector. For PSPs, the changes will have material implications for business models, governance and regulatory strategy.
Need to know
- In March 2026, Treasury released new draft legislation (Tranche 1) overhauling the regulatory framework for payment service providers in Australia, following consultation on the earlier Tranche 1a draft.
- The reforms mean increased regulation of PSPs, including new Australian financial services (AFS) licensing requirements, a standalone prudential regime and enhanced oversight of stored value facilities (SVFs).
- Consultation closes 9 April 2026. Reforms are intended to commence 12 months after Royal Assent, with transitional periods.
Background
The government is making significant reforms to the regulatory framework for PSPs.
On 3 October 2025, Treasury released draft legislation, referred to as ‘Tranche 1a’, which set the foundations for the new payments regulatory framework by introducing legislation to establish obligations through:
requiring PSPs that provide certain services having to obtain an Australian financial services AFS licence;
APRA powers for major stored value facility providers; and
a rule-making power to enable the introduction of a mandatory, revised ePayments code.
For further information about the draft Tranche 1a legislation, please see our previous article Treasury proposes overhaul of payment system regulation: what you need to know.
Tranche 1 released
On 11 March 2026, following consultation on the Tranche 1a draft legislation, Treasury reviewed stakeholder feedback and released the full package of legislation for Tranche 1.
The full package includes:
- the Treasury Laws Amendment (Payments System Modernisation) Regulations 2026 (the Bill);
- the Payment Entities (Prudential Regulation) Bill 2026;
- two associated levy imposition bills;
- the Treasury Laws Amendment (Payments System Modernisation) Regulations 2026 (Draft Regulations); and
- accompanying explanatory materials.
Updates to Tranche 1a
Following consultation, Treasury made amendments to the draft legislation, including:
updating definitions of several payment functions; and
updating concepts and disclosure requirements relating to tokenised SVFs.
We have summarised the key amendments to the Tranche 1a draft legislation below:
Change | Description |
|---|---|
Adjusted definition of SVF | The definition of SVF has been expanded to better align with the intended policy scope, clarifying the conditions under which a facility constitutes an SVF, including exclusions for digital asset platforms, tokenised custody platforms, managed investment schemes, deposit products and single-payee facilities. |
Clarification that stablecoin tokens are not separately treated as financial products | Digital tokens connected to tokenised SVFs (ie the redemption right attached to the token) are expressly excluded from being a financial product. |
Adjusted definition of payment initiation service | The definition has been refined to clarify that a person provides a payment initiation service only where they take action that has the effect of initiating a non-cash funds transfer, excluding preparatory activities that do not actually cause a transfer to be made. |
Adjusted definition of payment technology and enablement services (PTES) | The PTES definition has been updated to better capture relevant activities (verification of payer identity, transmitting instructions, transmitting information necessary for producing instructions) whilst clarifying that purely ‘back-end’ services not involving an arrangement with the payer or payee are not regulated. |
Updated disclosure requirements for tokenised SVFs | New ongoing disclosure obligations require tokenised SVF providers to publish on the internet:
|
New legislation
The Tranche 1 package introduces several new obligations and restrictions for payment service providers, particularly in relation to stored value facilities and safeguarding customer funds.
SVF provider prohibitions
SVF providers are prohibited from paying, or having terms permitting payment of, interest or interest-like benefits in connection with amounts standing to the credit of an SVF. The purpose of the prohibition is to maintain a clear distinction between SVFs and deposit or investment products.
Tokenised SVF provider prohibitions
Tokenised SVF providers are prohibited from unreasonably restricting a possessor of digital tokens from exercising their redemption rights from the tokenised SVF.
Safeguarding payment-related money
Payment system licensees who hold payment-related money will, as a default, be required to segregate and hold that money in a trust account with an authorised deposit-taking institution (ADI), subject to prescribed conditions.
Prudential Regulations by APRA
Additional to the updated Tranche 1a draft, Treasury proposed a standalone prudential regime under the Prudential Regulation Bill for payment entities that operate at a scale presenting broader risks to the stability of the Australian financial system.
For payment facilitation providers, the Prudential Regulations Bill confers on APRA a comprehensive suite of regulatory tools, including the power to determine prudential standards, which may be tailored in content and application to particular classes of entity or individual regulated entities.
Importantly, the Prudential Regulations Bill contains safeguarding provisions for APRA-regulated entities, adjusted to permit the use of alternative safeguarding methods (including insurance, guarantees, or methods permitted by prudential standards) without prior APRA approval, including:
- taking control of a regulated entity's business, or appointing an administrator to do so, where the entity is unable (or likely to become unable) to meet its obligations;
- suspending payment, or where its continued operation would be inconsistent with the interests of its customers or the stability of the Australian financial system;
- conferring powers on the statutory manager to:
- replace the board of directors;
- sell the whole or part of the entity's business; and
- alter the entity's constitution where necessary for the performance of the statutory manager's functions and the promotion of financial system stability.
The Prudential Regulation Bill also empowers APRA to prudentially regulate ‘major SVF providers’. Major SVF providers are SVF providers who satisfy certain financial thresholds regarding the amounts standing to the credit of regulated facilities issued by that provider and its related bodies corporate.
AFS Licensing exemptions and exclusions
The Draft Regulations introduce tailored definitions and exemptions for a range of lower-risk payment products and service:
- Low value SVF:
- the facility is not a component of another facility that is a financial product;
at the time the facility is issued, the total of the amounts standing to the credit of all stored value facilities that:
- are issued by the issuer, or a related body corporate of the issuer, who was required to hold an AFS licence covering their issue; and
- are financial products,
is not more than $10 million;
- if the facility is not a tokenised SVF, the terms of each applicable facility other than a tokenised SVF do not permit a person to hold more than $1,000 in amounts standing to the credit of the applicable facility.
If the facility is not a tokenised SVF, the terms of each applicable facility other than a tokenised SVF do not permit a person to hold more than $1,000 in amounts standing to the credit of the applicable facility.
- Low value payment instrument: is a payment instrument for which a person can make non-cash funds transfers only from a single facility in accordance with the payment instrument and the facility is a low value SVF.
- Low value payment service: is a payment service where the average monthly value of funds transferred as provider or a related body corporate does not exceed $8 million (per month) over the previous 12 months and the service is not part of another financial product.
Transitional arrangements
The reforms are intended to commence 12 months after receiving royal assent, with transitional arrangements differentiating between PSPs that already hold relevant AFS licence authorisations and those that do not.
PSPs that currently hold an AFS licence with a condition authorising the provision of financial services relating to NCP facilities will have a one-month default transition period following commencement in which to apply for a streamlined variation of their licence conditions. Provided the application contains all necessary information, ASIC does not have discretion to refuse the variation.
For all other PSPs, a six-month default transition period applies, during which they may apply for a new AFS licence or variation of an existing licence.
What's next
Consultation closes on 9 April 2026. If you have feedback or would like to discuss how the draft legislation impacts your business, please reach out to our specialist financial services and digital assets team.
Contacts
