Reforms to the Payment Systems (Regulation) Act 1998
The Federal Government has proposed changes to the Payment Systems (Regulation) Act 1998 (PSRA) to ensure both government and regulators have scope to address novel risks around payments.
In this article, we examine the proposed reforms, which are largely consistent with the recommendations of the June 2021 Review of the Payments System (Review).
The proposed changes to the PSRA were released on 7 June 2023 as one of Treasury’s three publications about the Government’s strategic plan for Australia’s payments system, licensing of payment service providers, and reforms to the Payment Systems (Regulation) Act 1988 (Cth). You can read our other updates: ‘Treasury releases strategic plan for Australia’s payments system‘ and ‘Payments system modernisation – licensing: defining payment functions‘.
Updating the definition of ‘payment system’ and ‘participant’ to ensure all new and existing entities involved in facilitating or enabling payments can be regulated on a ‘national interest’ or ‘public interest’ grounds.
It is proposed that the existing definition of ‘payment system’ be expanded to include both bilateral and multilateral arrangements including ‘three party’ and ‘closed loop’ systems. Further, the existing definition refers to ‘money’ and the consultation proposes to change this to ‘value’ to account for systems that use non-monetary digital assets.
The proposed principle-based approach would define a payment system as ‘an arrangement or series of arrangements for enabling or facilitating payment or transfer of value, or a class of payments or transfer of value, and includes any instruments and procedures that relate to the arrangement or series of arrangements’. The proposed definition would be better aligned with wording found in Canadian, British and New Zealand definitions.
It is also proposed the existing definition of ‘participant’ is expanded to include all entities that have a role in respect of facilitating or enabling payments that are made through a payment system. This will capture services such as digital wallets and cash in transit services which play a pivotal role but are not formal members of a particular payment system. The proposed definition would define a participant as ‘a constitutional corporation that operates, participates in or administers a payment system.
It could also include a constitutional corporation that provides services to a payment system or provides services for the purposes of enabling or facilitating a transfer of value using a payment system’. This definition will be more in line with definitions in the United Kingdom and New Zealand.
In the case of both revisions, regulation will only occur if there are ‘national interest’ or ‘public interest’ grounds, informed by an impact assessment.
Provide a designation power to the Treasurer to address payments issues on ‘national interest’ grounds such as national security or consumer protection concerns which are not in the ‘public interest’ mandate.
The proposed designation power will replicate the existing process the RBA takes before decisions made based on ‘public interest grounds’. The power would enable the Treasurer to designate payment systems, allocate responsibility for addressing a particular policy issue concerning specific designated systems to the best-placed regulator, and issue specific directions to regulators. The benefits of vesting power in the Treasurer to act in the ‘national interest’ are that the Treasurer can:
- engage more openly with industry due to not playing a regulatory enforcement role;
- make timely decisions on urgent issues; and
- engage other agencies where issues extend beyond the remit of a particular regulator.
To take any of these actions, it is proposed that the Treasurer must first be satisfied that the use of PSRA powers is necessary (by considering other regulatory options), engage prospective regulators, and consult with parties affected by any decision.
The proposal is consistent with the recommendations of the Review in that:
- the Treasurer is best placed to provide enhanced leadership, vision and supervision in an increasingly complex and rapidly transforming payments space (Recommendation 2); and
- new Ministerial powers would support the Treasurer’s ability to take an elevated leadership role (Recommendation 7).
A difference to the Review’s recommendations is that a national interest power does not mean the Treasurer can give binding directions to participants in payment systems. The role of the Treasurer would be secondary to regulators that have superior knowledge and expertise in the space.
Another topic of the consultation is how ‘national interest’ would be defined. Currently, no definition exists in the PSRA. It is proposed that it could have regard to a range of factors such as national security, consumer protection, data-related concerns, innovation, cyber security, anti-money laundering and counter-terrorism financing, crisis management and accessibility. These would be addressed either in legislation, explanatory material or separate policy.
Apply regulatory requirements in a broader manner than has traditionally been the case under the existing standards making power.
The PSRA currently gives power to the RBA to impose regulatory obligations through an access regime or standard. Traditionally, this power has been used in relation to specific technical issues. There is a policy case to expand the scope of powers to impose regulatory obligations on broader issues such as where there is a public interest case – eg a general requirement about publishing interoperability information. The solution could be to clarify the scope of the current standard power or introduce a separate directions power for more general regulatory obligations.
Allow the RBA to publicly disclose information that could encourage compliance with policy objectives
Currently the RBA can gather information under section 26 of the PSRA but Part 6 of the Reserve Bank Act 1959 means that the RBA must obtain consent from a participant before it can disclose any identifying information (unless an exception in section 79A applies). Removing this barrier allows for a more graduated regulatory tool kit. A solution could be permitting a mechanism removing the need for consent in order to support the RBA’s existing public interest-based powers, provided that the notification requirements and ‘public interest’ thresholds are met.
Replace current practice of accepting voluntary undertakings with accepting court enforceable undertakings
As it stands, undertakings are voluntary, can be withdrawn, and there is no formal process for court enforcement of the undertaking’s terms in the event of a breach. Given the interconnectedness of payment systems, the Treasury argues that it may be beneficial to provide greater certainty about how undertakings will be dealt with. It is proposed that the RBA is empowered to accept court-enforceable voluntary undertakings form participants. This would replace the current practice of accepting voluntary undertakings.
The proposal would bring the approach in line with the current powers of APRA, ACCC, and ASIC and several other Commonwealth regimes including the Fair Work Act 2009, Privacy Act 1988 and the My Health Records Act 2012.
Update the PSRA penalty framework to better support enforcement and compliance
When compared with similar frameworks, the penalties for contravening the PSRA are low where the maximum fine a prosecuted body corporate is only 250 penalty units ($68,750). Further, non-compliance with the PSRA have not warranted criminal sanctions to this date. The consultation proposes to implement a more graduated penalty regime to better deter conduct across the spectrum. The solution could either be to include calibrated civil and criminal penalty provisions or permit the imposition of penalties for breaches rather than only for failure to comply with directions to rectify a breach (section 21).
Repealing procedures to resolve differences of opinion between the Government and the RBA
An independent review of the RBA conducted by the Government recommended that the RBA should continue to have operational independence for monetary policy and the Treasurer should be stripped of its power to overrule the Reserve Bank Board’s decision. It also recommended to repeal the procedure in section 11 of the Reserve Bank Act in relation to the Reserve Bank Board’s decisions.
With respect to section 11 in the context of payments policy, the proposed reforms introducing a Ministerial designation power will provide for circumstances under which the Government, through the Treasurer, is intended to intervene in respect of payments policy under the PSRA.
The Government is consulting on whether section 11 of the RBA Act should apply to payments system policy and the circumstances that it would be appropriate to rely on it to resolve differing opinions between the Government and the RBA in relation to payments system policy.