Federal Government commits to modernise Australia’s financial system

By John Bassilios 

In a joint media release dated 14 December 2022, Treasurer Jim Chalmers and Assistant Treasurer Minister for Financial Services Hon Stephen Jones MP announced that the Federal Government has committed to reforms for Australia’s financial system.

The Government intends to focus on four areas of financial services reform in 2023:

• updating and strengthening Australia’s payment system;
• strengthening our financial market infrastructure;
• establishing a regulatory framework for buy now, pay later (BNPL); and
• establishing a framework for the licensing and regulation of crypto service providers.

The reforms are aimed at modernising our regulatory architecture to keep up with market changes, such as the introduction of new digital products and services. We have previously published several articles highlighting the difficulties of applying existing financial services regulation to digital assets.

Payments system

Concurrently with the media release, the Government released a consultation paper for reforms to the Australian payments system.

The reform agenda outlined in the consultation paper includes:

• developing a Strategic Plan for the payments system, which is to be released in the first quarter of 2023. This will be informed by the responses to the consultation paper.
• updating the Payments Systems (Regulations) Act 1998 to capture the full suite of payment entities and systems, including digital wallet providers.
• consulting on a Ministerial designation power allowing particular payments services or platforms that present risks of national significance to be subject to additional oversight by appropriate regulators.
• implementing a tiered licencing framework for payment service providers.
• reducing small business transaction costs.
• continuing cross-border initiatives to develop international interoperability.
• considering developments in the broader digital economy relating to payments.

The former government had initiated a review of the Australian payments system in October 2020, which culminated in a final report issued on 30 August 2021 and government response released on 8 December 2021. In general, there is a significant overlap between the commitments made by the former and current governments.

Financial market infrastructure

The Government will act on recommendations by the Council of Financial Regulators (CFR) to improve Australia’s financial market infrastructure. Specifically, CFR identified that there was no crisis regime in place to enable the RBA to step in and to ensure continuity of clearing and settlement services in the event of a crisis.

In addition to providing the RBA with powers to resolve a crisis at a domestic clearing and settlement facility, the Government will seek to:

• strengthen licensing, supervisory and enforcement powers of regulators to minimise the likelihood of a crisis occurring; and
• introduce legislation providing ASIC and ACCC with additional powers to facilitate competition in the clearing and settlement of cash equities.

Regulatory framework for BNPL

The Government released an options paper on 21 November 2022 seeking feedback on the future regulatory framework for BNPL arrangements. We recently published an article summarising the regulatory issues surrounding the BNPL sector and the regulatory options proposed in the options paper. Consultation closes on 23 December 2022.

Licensing and regulation of crypto service providers

The Government’s first priority in relation to the crypto sector is the release of a consultation paper in early 2023 as part of its ‘token mapping’ exercise. Following the release of token mapping, the Government intends to consult on a custody and licensing framework before introducing legislation.