Treasurer Jim Chalmers has followed up the release of draft legislation in October that expands the regulatory coverage of the payments system, with the release last week of a consultation paper that sets out a proposed regulatory framework for payments service providers. The consultation paper sets out the roles that APRA, ASIC and the Reserve Bank will play under the new regime, the key risks those regulators will monitor, licensing processes and standard setting. A key piece of the framework is that APRA will regulate the “common access requirements” that will provide the pathway for non-bank payments service providers to gain access to the system. Non-bank payments service providers are currently not eligible to become direct clearing and settlement participants in the New Payments Platform and are subject to additional conditions in other parts of the system.  The new common access requirements will provide a pathway for them to gain direct access to Australian payments systems to clear and settle payments. The government’s strategic plan for the payments system is to regulate payment service providers based on the payment functions they provide, with a focus on making sure new entrants have clear directions on what they need to do to access the system.  The move to the regulation of functions, not companies, is designed to allow for more effective regulatory coverage of businesses like tech companies that are in the payments system. The draft legislation, which amends the Payment Systems (Regulation) Act, expands the definition of a “payment system” to cover a broader set of business models, including arrangements that use non-monetary digital assets for payments, provide services that facilitate a payment being made, and third party and closed loop systems.  A closed loop system refers to a system that consists only of multiple bilateral arrangements between an entity and the payers and payees that use the system. A three-party scheme is one where one entity is both acquirer and issuer. Under the current law, the definition of a “payment system” is limited to a system that facilitates the circulation of money. This means that payment systems that facilitate payments in non-monetary digital assets or that provide services that facilitate a payment being made cannot be considered a payment system under the Act. According to the explanatory memorandum accompanying the draft bill, the current law is potentially limited in its application to arrangements in which there are multiple participants that operate under a common set of rules. The explanatory memorandum said: “The new definition ensures all entities involved in the payments value chain, including entities with or without a direct relationship to a payment system, are captured. This includes, for example, digital wallet services that facilitate payments by storing digital representations of payment cards. “The adjustment reflects that some entities that act as intermediaries between a person and a payment system, rather than only interacting with the payment system, may nevertheless play an important role in facilitating or enabling payments.” In addition to digital wallet services, the new definition will also cover providers of buy now pay later services, cash-in-transit services and services that