Review of Australian retail payments regulations

The Council of Financial Regulators (CFR) (consisting of Australian Prudential Regulation Authority, Australian Securities and Investments Commission, Reserve Bank of Australia and the Department of the Treasury) has released an Issues Paper, Review of Retail Payments Regulation: Stored-value Facilities for public consultation. Background.

The CFR is reviewing the regulatory regime for stored-value facilities in Australia. Stored-value facilities include a wide range of facilities including purchased payment facilities (a facility under which a holder of stored value makes payments to another person on behalf of the user of the facility). This potentially covers facilities from prepaid cards to services that are bank-like, such as digital wallets.

The review will consider the regulatory approach to stored-value facilities in the context of market developments and emerging business models that incorporate stored value.

The review has the following objectives:
• to identify opportunities to simplify the regulatory framework for stored-value facilities;
• to ensure that regulation does not pose an undue obstacle to innovation and competition while maintaining appropriate levels of consumer protection and system-wide safety;
• to identify any changes necessary to enable regulation to adapt to recent and prospective developments in the payments market, including those associated with advances in technology and new participants;
• to identify opportunities to improve the ‘competitive neutrality’ of regulation; and
• to improve the transparency and clarity of regulation from the perspective of regulated entities, potential new entrants, and consumers and other users.

The Issues Paper asks a range of questions including “What regulatory boundaries or thresholds for stored-value facilities are appropriate?”

It suggests:

  • Facilities with total stored value less than $10 million (and/or a limited number of people) could be largely exempted from prudential and licensing regulation;
  • Facilities with stored value between $10 million and $50 million, and with more than 50 people, could be subject to some degree of regulation;
  • Widely available facilities with stored value above $50 million and allowing individual customers to hold more than $1,000 or $500 could be subject to the highest degree of regulation.

The CFR is seeking views on whether there are other factors that should be considered in determining whether a facility has ‘deposit-like’ features. Examples of facilities which raise potential issues include:

  • multi-currency facilities that are redeemable for Australian currency;
  • facilities that are redeemable for foreign currency;
  • ‘open-ended’ facilities, where money is held in a facility with no expiry date for use;
  • ‘closed-loop’ systems involving funds that are not ‘redeemable’ for currency but can be used for certain purchases within the same system, or are referable to the provision of property/services/giving of security (for example, facilities that allow in-app purchases similar to WeChat Pay, or allow purchases to be made within a network, such as gift cards).
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