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As the Reserve Bank of Australia (RBA) prepares to hand over much of its payments regulatory duties to the Treasury, there is a long road ahead to trash out what will stay and will go. There are questions too about the Treasury’s impartiality as a regulator.
An Australian central banker has said the transfer of the bank’s payments regulatory duties to the Treasury will be among its “key priorities” in the years ahead.
Speaking at the Australian Finance Industry Association (AFIA) annual conference in Sydney, Michele Bullock, deputy governor of the RBA, said the bank’s downsizing of its role is necessary due to the scale of change taking place in the payments industry.
“Payments have changed substantially over the past couple of decades and the payments ecosystem couldn’t look more different today,” she said.
“We have a fast payments system that allows person-to-person payments in a matter of seconds, and customers can pay for goods and services using buy now, pay later (BNPL) services — effectively digitising instalment credit.”
In particular, Bullock pointed out that the country’s payments system is no longer the exclusive domain of Australia's banks.
“We have non-bank acquirers of card transactions, payment gateways, payment facilitators, mobile wallet providers, BNPL firms and cross-border payment specialists, and now we have stablecoins on the horizon,” she said.
In response to these challenges, Bullock stressed that working with the Treasury to implement reforms that were recommended by the Treasury and the government last year is one of the RBA’s top priorities.
In August 2021, the Treasury published a review of the regulatory framework of Australia’s payments system, which outlined 15 recommendations for lawmakers to consider.
In December 2021, the Treasury published a follow-up detailing the government’s point-by-point response to the review and its recommendations.
Out of the 15 recommendations, six were built around the Treasury taking a more active role in payment regulations, and all six were either agreed to or “noted” by the government.
“Given the increased complexity of payments issues and the acceleration of financial innovation, enhanced leadership, vision and oversight is needed in the payments ecosystem,” the Treasury noted in one recommendation.
“The government, through the Treasurer, is best placed to provide this.”
The government, to support this transformation, has promised additional resources for the Treasury to build its capability in payments and to strengthen coordination with industry and financial regulators.
“Treasury will work with industry and experts to bring together a strategic plan for government endorsement” and will be “supported through new ministerial powers”.
Establishing a remit
However, almost one year on since the government’s responses were published, it is still unclear how much power over payments will move from the RBA to the Treasury.
Michael Swannell, managing director of payments-focused KeyOne Consulting, told VIXIO the changes will be “substantial”, and will likely lead to the “biggest shake-up of the payments industry since the early 2000s”.
For example, one of the Treasury’s recommendations was that the definition of a “payments system” within the country’s foundational regulatory framework, the Payment Systems (Regulation) Act 1988 (PSRA), be expanded to encompass new and emerging technologies.
The government agreed to this recommendation, but so far no amendment has been enacted to that effect.
In her speech, Bullock said there will ultimately be several elements to the changes. First, the amendment should be broad enough to capture new payment systems and payment system participants.
And second, new regulatory regimes should be developed to assist non-banks to participate directly in the payments system.
“Non-banks have consistently noted that they are at a competitive disadvantage because they are often unable to gain direct access to payment systems — they have to connect through a direct participant, typically a bank,” she said.
“The argument of the payment system operators has generally been along the lines of ‘participants bring risk to the system so they need to be supervised to join the system’.
“This makes it difficult for payment service providers (PSPs) that are not banks and do not need to be banks for the services they provide.”
Bullock noted that a licence that is proportionate to the risks that PSPs bring to the system, coupled with some common access requirements, would make it easier for non-bank PSPs to participate directly in payment systems if they choose.
She added that, as outlined in the Treasury’s review and recommendations, a simplified licensing process should be established for stored-value facilities.
In its response, the government agreed for the Treasury to be tasked with leading efforts towards “legislative change” in this area. However, the licences would still be administered by the Australian Securities & Investments Commission (ASIC).
“At the moment, these entities face a rather convoluted supervisory regime involving the ASIC, the RBA and the Australian Prudential Regulation Authority (APRA),” said Bullock.
“This reform has been on the agenda for a number of years, but is yet to be addressed by legislation.”
The impartiality question
Commenting on the shift in regulatory priorities in Australia, Swannell said the process of transferring power from the RBA to the Treasury will ensure that the country’s regulators have a “full plate” for the foreseeable future.
Swannell’s main worry, however, is that the shift in power will bring payments regulation further into the domain of party politicians.
“To date, my sense is that you get a more independent and considered view with the RBA overseeing things,” he said.
“Politicising it does concern me, because then it becomes one of these things where, when the government changes the focus can also change. In order for payments regulation to be successful, it requires fine adjustments."
