Proposed changes to payments system legislation will expand regulatory coverage to ensure all entities that play a role in payments are covered, as well as giving the government greater flexibility to respond to issues as they emerge.  Treasurer Jim Chalmers has followed up the release of the Strategic Plan for Australia’s Payments System in June, with the publication this week of a draft bill that amends the Payment Systems (Regulation) Act. The new law will expand 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 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 new law expands the definition of “participant” to capture all entities involved in the payments value chain. 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 facilitate payment in crypto assets. The new law also introduces a definition for the term “funds” – an umbrella term that includes, but is not limited to, money and digital units of value. The relevant minister will have the power to designate a payment system if it is in the national interest to do so. As well as giving the Reserve Bank wider regulatory power under the expanded definitions, the new law gives the RBA power to accept enforceable undertakings in relation to its powers under the Payment Systems (Regulation) Act. Back in June, Chalmers said: ““Our regulatory frameworks and infrastructure have not kept up with the big trends and transitions happening in finance, especially when it comes to the digital economy and payments. Our vision is to create a modern, world class and efficient payments system.” He said the aim of the regulatory overhaul would be to regulate payment