The Morrison Government has paved the way for an overhaul of regulatory arrangements in the domestic payments system after announcing a Treasury review to assess whether the existing framework is “fit for purpose”.
Since the 1997 Wallis Inquiry, the Reserve Bank’s Payments System Board has been the chief regulator of the payments system, although APRA, ASIC and the ACCC also exercise licensing and other responsibilities across the sector.
Details of the review were flagged by prime minister Scott Morrison last week but attracted little public attention because payments experts assumed that his announcement was a reference to the RBA’s delayed retail payments inquiry.
However, disclosures in the 2020-21 budget papers clarified that Morrison was referring to a separate review to be conducted by Treasury officials.
Government sources confirmed to Banking Day last night that terms of reference for the Treasury review were being finalised and were expected to be made public in the next month.
The government plans to have the Treasury review run in parallel to the RBA’s retail payments inquiry, which is examining options for how new payments services such as mobile payments and least cost routing will regulated in the future.
The Treasury review is likely to consider whether the RBA’s responsibility for oversight of payments in Australia should be devolved to a stand-alone regulator as has occurred in other OECD countries such as New Zealand and the United Kingdom.
Despite efforts in the last decade by New Zealand’s central bank to secure more influence over the payments system, the country’s lawmakers decided in 2013 to hand regulatory power to Payments NZ, an entity owned by bank participants.
As a result, New Zealand has one of the most lightly regulated payments markets in the world.
It provides a sharp contrast to the Australian regulatory approach, which Payments NZ describes in its official literature as “very intrusive”.
“It is commonly believed that the Reserve Bank of Australia has one of the clearest and strongest mandates in the world in relation to payment systems,” the Kiwi regulator states on its website.
Banking Day understands that the Morrison government’s decision to review the regulatory arrangements was driven, in part, by the findings of the Productivity Commission’s 2018 report on competition in the financial services industry.
In the budget papers, the government states that Treasury would also assess the “governance” of payments regulation and how it could impact innovation and competition.
One of the PC’s key recommendations was for the New Payments Platform to develop an access regime to support the efficient entry of fintechs and other new participants in the payments system.
However, the PC warned that the NPP’s board was dominated by representatives of established banks, who had the power to block or complicate the participation of emerging payments players.
“In effect, this (the NPP’s) access model requires new competitors to be accepted by the initial participants, which could reasonably be expected to involve conflicts of interest,” the commission argues in its 2018 report.
“The NPP is a significant piece of national infrastructure and more transparency and rigour around the process for access is needed to avoid conflicts of interest that would potentially restrict competition.”