Treasury proposes overhaul of payment system regulation: what you need to know
Key takeaways
- SVFs and tokenised SVFs (ie stablecoins) are intended to be expressly regulated under financial services laws – this could impact the AFS licensing requirements of your business.
- The scope of the term ‘payment services’ has been expressly clarified in the draft legislation to include, among other things, payment facilitation services and payment initiation services.
- The ‘retail’ and ‘wholesale’ client distinction are amended for purposes of the draft regulations and an AFS licensee that provides a Payment Service or a financial service relating to an SVF/Tokenised SVF to another licensee as an intermediary must also comply with the new obligations.
The government has been consulting for an extended period on a licencing framework for payment service providers (PSP). PSP’s operate services that enable consumers and businesses to make and receive payments. These payment systems are central to the function of the Australian economy and facilitate an estimated 55 million transactions within Australia each day.[1]
For more information on the government’s consultations on the proposed new framework, see our previous article ‘Payment System modernisation - licensing: second consultation paper released’.
Following consultations on the proposed new framework, the Treasury announced on 9 October 2025 it is consulting on the recently published exposure draft legislation[2], ‘Treasury Laws Amendment Bill 2025: Payments System Modernisation— amendment of the Corporations Act 2001’ (draft legislation), aimed at modernising Australia’s payment regulation system.
Released as tranche 1a,[3] the draft legislation describes the proposed amendments to the Corporations Act 2001 (Cth) (Act), specifically, the Australian financial services (AFS) licencing framework. The focus is on introducing new, defined types of financial products and services offered by PSP’s, and leveraging the clarity offered by these now-defined offerings to apply ‘proportionate and consistent regulation’[4]tailored to the nature of the product or service offered by the PSP.
This comes fresh on the heels of a separate exposure draft released recently, outlining similar major reform to digital asset and tokenised custody platforms. This draft legislation will work in conjunction with those proposed reforms, utilising similar concepts and definitions which will assist in the interpretation of provisions for PSP’s[5]. Our previous article, ‘Cryptocurrency exchanges face regulatory overhaul – who and what’ included’provides a summary of those reforms.
Key features
New financial products and services
The ever-growing complexity of PSP’s and their platforms have restricted the capacity for regulators to adapt and apply specific obligations to particular technologies and business models, leaving significant regulatory gaps.
The following defined terms are included within the draft legislation, along with their inclusion as a ‘financial product’ or ‘financial service’ under the AFS licencing regime:
- Stored Value Facility (SVF), being a facility under which:
- funds are transferred to a person without any instruction as to the further transfer of the funds; and
- another person acquires one or more rights to redeem from a person (whether the person mentioned in paragraph (a)) amounts not exceeding the amount from time to time standing to the credit of the facility; and
- each such right may be exercised by:
- the person who possesses the right; or
- a person nominated by that person
by one or more methods that include making a non-cash funds transfer
Broadly, SVF’s are defined by the ability to store funds without an onward payment instruction and the ability to exercise the rights in the facility, regardless of whether that feature is used in any particular moment.
The draft legislation distinguishes between an SVF and a ‘major SVF’ (including a ‘tokenised SVF’, as described below), based on the value of funds held by the facility. The aggregate threshold value is suggested to be $200 million, though this has not yet been confirmed in the regulations. Major SVF providers will be required to register with the Australian Prudential Regulatory Authority, who will receive enhanced powers to monitor these more influential providers.
- Tokenised Stored Value Facility (Tokenised SVF), being an SVF in relation to which the following additional conditions are satisfied:
- each right to redeem a particular amount in respect of the amount standing to the credit of the facility is exercisable only by the person who possesses the digital token attached to that right;
- the amount that may be redeemed in exercising that right is fixed and denominated in a single currency (whether Australian or foreign currency).
The inclusion of tokenised SVF responds to the rise of digital assets such as stablecoins.[6] It’s critical to note that the tokenised SVF provider who issues the stablecoin provides the financial product and is subject to the specific regulations. The stablecoin itself is not the financial product, nor does any subsequent transfer of the stablecoin constitute a transfer of a tokenised SVF.
Payment services
The following services, though distinct in their operation, are collectively defined in the draft legislation as ‘payment services’:
- Payment Facilitation Service (PFS), which will be provided in circumstances where:
- under an arrangement with another person, funds are transferred to the provider in connection with the making of a non-cash funds transfer; and
- the funds are so transferred on the basis that the provider will further transfer the funds in accordance with the instructions for the non-cash funds transfer; and
- the provider is a constitutionally covered corporation or a representative of a constitutionally covered corporation.
This comprises services delivered to either the payee or the payer, such as merchant acquiring services which enable businesses to accept funds from the payer, or remittance services which enable a customer to remit funds to the payee.
Provision of a PFS will also be considered to have occurred even when provided by one PSP to another PSP.
- Payment Initiation Service (PIS), which will be provided in circumstances where:
- a provider takes action to initiate a non-cash funds transfer to be made by another person (whether or not the transfer is completed); and
- the provider is not:
- the issuer of the facility from the credit of which the funds are transferred; or
- the payer or payee, or a person interposed between, for the non-cash funds transfer; and
- the provider is, or is a representative of, a constitutionally covered corporation.
This term covers PSP’s that provide services such as ‘PayTo’ services and direct debit services to merchants, enabling merchants to offer customers the ability to pay directly from their bank account.
The payer and payee, and any person interposed between the payer, and the payee will not be considered to have provided a PIS.
- Payment Technology and Enablement Service (PTES), which will be provided in circumstances where:
- the provider takes action:
- to verify a person’s identity for the purpose of enabling the person to make one or more non-cash funds transfers (whether in general or in connection with a particular non-cash funds transfer); or
- to transmit an instruction given by a person as the payer or payee in connection with the making of a non-cash funds transfer; and
- if the action is taken in relation to a particular non-cash funds transfer—the provider is not:
- the issuer of a facility from the credit of which funds the subject of the non-cash funds transfer are transferred; or
- the payer or payee, or a person interposed between the payer and payee, for the non-cash funds transfer; and
- the provider is a constitutionally covered corporation or a representative of a constitutionally covered corporation.
- the provider takes action:
This term covers providers of services such as digital wallets, commonplace in today’s digital environment, and payment gateways, which enable payees to accept funds transfers from payers.
Whilst the broad field of PTES providers will fall under this definition, providers (particularly payment gateway providers) who only facilitate non-cash funds transfers for other PSP’s, without engaging the payer/consumer (ie back-end service providers), will not be considered to provide a financial service.
The Draft Legislation also inserts definitions for, among other things, terms such as ‘transfer’, ‘funds’ and ‘non-cash funds transfer’ to assist in the interpretation of the core definitions above.
Previously, the AFS licencing requirements and associated obligations only applied under a subsection of the definition of ‘financial product’, applying to providers operating a facility under which a person ‘makes a non-cash payment’, which does not accurately capture the full extent of service providers within the payment chain, who otherwise do not fall within this definition.
The proposed transition to utilising these specific, comprehensive definitions will therefore extend the scope of the AFS licencing regime, such that entities providing or engaging in services defined above are considered to provide a financial product (SVF and Tokenised SVF) or now even a financial service (PFS, PIS and PTES).
AFS licensing obligations
General
The draft legislation exposes PSP’s to the same general AFS licensee obligations, including the additional obligations imposed when services are provided to retail clients. However, there are some discrete adjustments applicable to PSP’s to address their potential risk:
- Retail vs wholesale client
- The definitions of ‘retail’ and ‘wholesale’ client are amended in that the circumstances in which a financial product or service is provided to a person as a retail client is based on a specific amount to be specified in the regulations; and
- the ‘retail client - sophisticated investor’ exemption in section 761GA of the Act will not apply to the provision of SVF’s, tokenised SVF’s or payment services.
- Intermediary licensee
- Where a licensee (intermediary licensee) provides a payment service or a financial service relating to an SVF/tokenised SVF to another licensee (other licensee), to enable the other licensee to provide those particular services, then the intermediary licensee must also comply with the new obligations.
These obligations include taking reasonable steps to co-operate with AFCA regarding any complaints, and co-operating with the other licensee for the purpose of applying the other licensees internal dispute resolution procedure in the event of a complaint regarding provision of these new financial products and services.
Tokenised SVF Provider Obligations
In addition, tokenised SVF providers have the following additional ongoing disclosure obligations:
- material change or significant events:
- being anything which may reasonably affect:
- the value of reserve assets held by the providers to meet its obligations under tokenised SVF’s it has issued; or
- its ability to meet those obligations.
- being anything which may reasonably affect:
- monthly disclosure regarding reserve assets and outstanding liabilities:
- within 7 days of the end of each calendar month, a tokenised SVF must publish a statement detailing:
- the reserve assets held by the provider to meet their obligations under the tokenised SVF’s it has issued; and
- all outstanding liabilities relating to tokenised SVF’s it has issued
- within 7 days of the end of each calendar month, a tokenised SVF must publish a statement detailing:
Other initiatives
The following also features in the draft legislation.
ePayments code
The draft legislation provides broad flexibility to regulators and the Minister. This flexibility is provided by a comprehensive ‘rulemaking power’.
This power enables the Minister to introduce a new, mandatory ‘ePayments Code’. This Code will set out core obligations for providers regarding, in particular, unauthorised transactions and mistaken matters, however the Minister has a broad discretion to make further prescriptions.
Safeguarding money
The reforms will introduce new requirements to safeguard payment-related money, to ensure the security and availability of consumer funds held with or transacted through a PSP. This will be implemented through separate frameworks based on whether an entity is ASIC or APRA regulated, with the primary method being the segregation of payment-related money in a separate trust account, with an Australian authorised deposit-taking institution.
Other methods involve insurance requirements, and any further methods prescribed under regulations.
Unclaimed money
Regarding SVF’s and tokenised SVF’s, the draft legislation provides a streamlined process for managing money held by these providers, that have become inactive or dormant over an extended period of time.
Details of the process have not been released, however the explanatory memorandum to the draft legislation offers a comprehensive proposal regarding the treatment of unclaimed money.
Where to from here?
The draft legislation signals a major shift in how payment services are defined and regulated in Australia. By introducing clearer categories of financial products and services and aligning obligations with the nature and scale of those offerings, the reforms aim to create a more consistent and transparent regulatory framework, improving consumer protections in the process.
The government will release two sub-tranches of draft legislation for consultation for tranche 1 reforms, with the objective of introducing a single package of legislation to Parliament in 2026.
Tranche 1b of the reforms is scheduled to be released in early 2026. Public consultation on tranche 1a closes 6 November 2025.
If you’d like to discuss what the draft legislation means for your business, including the new general AFS licensing obligations as well as AFS licensing obligations specific to tokenised SVF providers, please reach out to our specialist financial services and digital assets team.
This article was written with the assistance of Kurt Frampton, Law Graduate.
[1] Payments System Board, Annual Report (2020), pg. 39.
[2] Treasury Laws Amendment Bill 2025: Payments System Modernisation— amendment of the Corporations Act 2001
[3] These reforms will be released over two sub-tranches: 1a, 1b and 2.
[4] Factsheet: Regulation of Payment Service Providers: Tranche 1a Exposure Draft Legislation, pg. 1.
[5] For example, the definition of ‘digital token’.
[6] See our article here for context regarding the Government’s gradual endorsement of this type of digital asset.
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