6 November 2020

Supporting competition and innovation in payment services

The Morrison Government has released the report of the Council of Financial Regulators’ (CFR) review of the regulation of Stored‑Value Facilities (SVFs) in Australia.

The release of the CFR’s report follows the announcement in the 2020–21 Budget that the Morrison Government will, in line with the report’s recommendations, modernise the regulation of Australian payments companies by introducing a new regulatory framework for SVFs. This reform will reduce red tape, uncertainty and complexity; and will bring Australia in line with our key global financial partners.

SVFs are payment services that enable customers to store funds in a facility for the purpose of making future payments. They encompass services including international money transfers, gift cards, pre‑paid cards and digital wallets. There is potential for SVFs to become a more prominent part of the payments system, as part of a rapidly changing global market that encourages innovation and consumer choice.

The report addresses a regulatory framework that had remained static for decades, and will open up new opportunities for Australian businesses and consumers. The CFR’s 11 recommendations prioritise innovation, competition and robust protections for consumers. The recommendations include:

  • Regulation of SVFs and other payments products should be graduated and commensurate with risks to consumers.
  • To streamline regulation, the RBA should no longer be involved in regulating individual providers of SVFs.
  • APRA should be responsible for prudential supervision of providers of large SVFs that offer similar functionality to bank deposits, with the existing prudential framework reformed to make it simpler, more targeted to risks and better aligned with international approaches.
  • ASIC should be responsible for regulating providers of SVFs (and other payments products) that do not meet the criteria for APRA supervision; and these SVF providers should be subject to additional requirements to ensure the safety of customers’ funds.
  • Compliance with the ePayments code should be mandatory for payments product providers.

Changes to legislation and prudential standards are needed to give effect to the reforms. I have asked Treasury to work with APRA and ASIC to develop the reform package, and to do so in close consultation with a wide range of industry and consumer stakeholders.

This reform initiative delivers on recommendations from the Financial System Inquiry and the Productivity Commission’s report on Competition in the Australian Financial System.

The report can be found at the Council of Financial Regulators website