Providers of stored value facilities face a stricter regulatory regime if wide-ranging recommendations of a review of the sector are adopted.
The Council of Financial Regulators has recommended that compliance with the ePayments Code should be mandatory and that issuers of payment products that hold client funds should be required to hold an Australian financial services licence.
The CFR review follows up work done by the 2014 Financial System Inquiry, which identified regulation of stored value facilities as an area that could be improved, and a 2018 the Productivity Commission report that recommended the CFR review regulatory arrangements for purchased payment facilities.
Both the FSI and the Productivity Commission said the complexity and regulatory overlap of current regulations should be addressed, while recommending that consumer protection measures be strengthened.
The CFR said: “Domestically, the regulatory agencies have seen increasing interest from providers of stored value products and the CFR’s recommendations are aimed at introducing a regulatory framework that is easier to navigate for regulated entities, more graduated according to risks and provides protection for consumers.”
Among its other recommendations, the CFR said APRA and ASIC should have regulatory responsibility for the sector, without the involvement of the Reserve Bank.
It said regulation should be “graduated and commensurate”, so that products that pose limited risk to consumers (small or limited purpose facilities) should be exempt from regulation. All facilities would continue to be subject to general consumer law requirements.
And it wants more comprehensive reporting of the amount of stored value and transaction flows.
The CFR said stored value facilities have the potential to play a prominent role in the payments system. It wants APRA to review its current regulation and make any changes necessary to ensure the sector can adapt to innovations.
“Internationally, stored value facilities have grown strongly in some jurisdictions and the recent announcement by a large technology company of plans to launch a digital wallet facility to provide payment services using a ‘global stablecoin’ has attracted considerable attention.”
Currently ASIC grants licensing exemptions for facilities in which funds held by any one client are not more than A$1000 and the total stored by all clients is not more than $10 million.
Various exemptions also apply to issuers of gift cards, prepaid mobile phone accounts, loyalty schemes and electronic toll road devices.
The Financial System Inquiry recommended a clarification of this graduated approach to regulation. It also recommended that basic consumer protection be mandatory.
An area of concern raised in the review is that there is a view in the industry that the provisions in the Corporations Act designed to protect stored value, such as requiring AFS licensees to hold client monies on trust in an account with an ADI, do not apply to money loaded into stored value facilities.
“Accordingly, these rules are not operating as intended and changes to the Corporations Act will be required to ensure that protections on client money loaded to SVFs operate effectively and client funds cannot be used as the provider’s working capital.”
The CFR has also raised the prospect that overseas providers of stored value