Government Approves Reform of Australia’s Regulatory Framework

09/12/2021

On 8 December 2021, Federal Treasurer Josh Frydenberg announced in a speech presented to the Australia-Israel Chamber of Commerce, an intention for the Australian Government to proceed with a reform of Australia’s regulatory framework as it applies to payments and crypto assets.

The announcement comes after the completion of a raft of reviews in this space, including the Council of Financial Regulators’ Stored Value Facility Review (CFR Review), the Treasury Payments System Review (Treasury Payments Review), the Senate Select Committee on Australia as a Technology and Financial Centre (Senate Fintech Review) and the Parliamentary Joint Committee Inquiry into Mobile Payments and Digital Wallets (Digital Wallet Review).

The Treasurer committed the Government to having the following in place by mid-2022:

Payments	A strategic longer-term plan for the payments system, developed with industry and reviewed annually. Details of additional powers for the Treasurer to set payment system policy. Changes necessary to modernise payments system legislation to accommodate new and emerging payment systems, including consideration of BNPL and digital wallets.
Crypto	Completed consultation on the establishment of a licencing framework for digital currency exchanges. Finalised consultation on a custody or depository regime for businesses that hold crypto assets on behalf of consumers. Received advice from the Council of Financial Regulators, working with other relevant agencies, on the underlying causes and policy responses to the issue of de-banking.

On the same day, Treasury released the Government’s response to the recommendations in each of the recent reviews, with a view to incorporating this position in a Payments System Strategic Plan for consultation in early 2022 and finalisation by mid-2022. The Government noted its position on each of the recommendations as follows:

Treasury Payments Review

Recommendation	Government response
Consumers and business should be at the centre of policy design and implementation	Agree – Regulatory architecture should serve consumers and businesses that rely on the payments ecosystem for their day to day activities.
Leadership of the payments ecosystem through the Treasurer	Agree – The Treasurer will be provided with additional resources and coordination capabilities to take on an enhanced leadership role, including new Ministerial powers.
A strategic plan for the payments ecosystem	Agree – Treasury will develop a 5 year strategic plan for the payments ecosystem.
Enhance Treasury’s payments policy function	Agree – Government will provide funding for Treasury to build an enhanced payments function.
Establish a payments industry convenor	Disagree – The establishment of an enhanced Treasury function will diminish the need for a convenor.
Expand definition of payment system in the Payment Systems (Regulation) Act 1998 (Cth)	Agree – Government will modify the relevant provisions and arrangements to give the RBA greater supervisory powers.
Introduce a Ministerial designation power	Agree – Government will introduce a Treasurer designation power for payment systems, when in the national interest to do so.
Introduce a list of payment functions that require regulation	Agree – Government will consult with industry to determine a set of payment functions that underpin the licensing regime.
Introduce a single, tiered payments licensing framework	Agree – Government will consult on a tiered licensing framework under the AFSL regime, and will encompass the recommendations from the CFR Review.
Mandate the ePayments Code for payments licensees	Agree – A condition of holding a licence will be to comply with the ePayments Code.
Single payments licensing framework should facilitate transparent access to payment systems	Agree – Government will work with the RBA to determine how to facilitate easier access to the licensing framework.
Align industry standards	Agree – RBA will be given power to authorise industry standard setting bodies.
Better align regulator approaches and regulatory requirements	Agree – Treasury will establish a regular payments forum with all relevant regulators to ensure alignment on approach and policy outcomes.
Educating consumers and businesses	Agree – The new National Financial Capability Strategy will aim to increase the capability of individuals to deal with a changing financial landscape.
Leverage the position of government as a large customer of the payments ecosystem to support broader objectives	Agree – As part of the strategic plan, Government will consider how government departments engage with the payments system.

Senate Fintech Review

Recommendation	Government response
Establish a market licensing regime for digital currency exchanges	Agree – Treasury will consult with ASIC on which functions of digital currency exchanges should be licensed and the obligations this will capture.
Establish a custody or depository regime for digital assets	Agree – Treasury will develop and consult on a possible custody or depository regime.
Conduct a token mapping exercise to characterise digital asset tokens	Agree – Treasury will conduct a token mapping exercise to identify relevant characteristics of digital assets.
Establish a new Decentralised Autonomous Organisation (DAO) structure	Agree – Treasury will consult with industry on a regulatory structure for new corporate structures like DAOs.
Clarify AML/CTF travel rule	Noted – Home Affairs and AUSTRAC will engage with industry on this issue.
Amend Capital Gains Tax (CGT) regime to create tax event relating to clearly definable capital gain or loss	Noted – Referred this to the Board of Taxation.
Give bitcoin miners using renewables a 10% company tax discount	Disagree – Government’s priority is on establishing a fit for purpose regulatory framework.
Treasury to lead policy review for a retail central bank digital currency (CBDC)	Agree – Treasury (with the RBA) will lead a review into the viability of a retail CBDC.
Address due diligence requirements in debanking issue	Noted – Referred this to the Council of Financial Regulators
Develop remediation process for businesses that have been debanked	Noted – Referred this to the Council of Financial Regulators
Develop common access regime for the new payments platform	Agree – Addressed in response to Treasury Payments Review.
Establish a Global Markets incentive to replace the Offshore Banking Unit (OBU)	Noted – Treasury will continue to consult with industry on OBU alternatives.

Digital Wallet Review

Recommendation	Government response
Treasury to enhance skills in the payments space	Agree – Government will provide funding for Treasury to build an enhanced payments function.
Treasury to change legislation enabling financial regulators to regulate stored value facilities	Agree – Government will consult on a single tiered licensing framework for payment providers, that will incorporate recommendations from the CFR Review.
Australian Payments Network to provide regulators with quarterly information on member non-compliance	Noted – Government will consult with Australian Payments Network.
Treasury to consult on effectiveness of payments system self-regulation	Noted – As part of its licensing consultation, Government will consult on industry standards.
ASIC to monitor ePayments Code and ensure it is updated when necessary	Agree – As part of its licensing consultation, Government will consult on how the ePayments Code should be updated.
AFIA to monitor effectiveness of BNPL Code of Practice and update when necessary	Noted – Government noted the importance of the code remaining up to date.
ASIC be given power to mandate ePayments Code	Agree – As part of its licensing consultation, Government will consult on how the ePayments Code should be implemented.
Expand definition of payment system in the Payment Systems (Regulation) Act 1998 (Cth)	Agree – Government will modify the relevant provisions and arrangements to give the RBA greater supervisory powers.
Treasury to consult with agencies on the merits of regulating payment platform providers as participants in payments ecosystem	Agree – Government notes the recommendations in the Treasury Payments Review will remove existing regulatory gaps.
ACCC to investigate Apple’s restrictions on direct third party access to NFC chips	Noted – Referred this to the ACCC.
ACCC to conduct examination on merits of least cost routing	Noted – Government recognises importance of least cost routing.
Payment systems to make fee structures more transparent	Agree – Notes the RBA will improve transparency of payments costs for merchants.
Inquiry into the BNPL industry 18 months after BNPL Code came into effect	Note – This is a matter for the committee.
ASIC update Moneysmart website to ensure it captures changes in the payments sector	Agree – ASIC should ensure this remains up to date.

The Government is broadly supportive of most recommendations presented by the reviews. However, at this stage the commitments appear to be principle based only and may result in a fundamentally different implementation once the Government has prepared the Payments System Strategic Plan and consulted with industry throughout 2022.

Please be in touch with our Payments, Fintech + Blockchain team should you wish to discuss.