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WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced
and does not canvass subsequent amendments. This Digest does not have
any official legal status. Other sources should be consulted to determine
the subsequent official status of the Bill.
CONTENTS
Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer and Copyright Details
Payment Systems (Regulation) Bill 1998
Date Introduced: 26 March 1998
House: House of Representatives
Portfolio: Treasurer
Commencement: On commencement of the Australian Prudential Regulation
Authority Act 1998
The Bill proposes a new regulatory framework for
the payments system. While existing industry self-regulatory arrangements
will be retained wherever these are performing satisfactorily, the bill
provides powers to the Reserve Bank of Australia (RBA) to enable it to
undertake more direct regulation by designating payment systems as subject
to the new law where it is considered in the public interest to do so.
Once a payment system is designated, the bill provides that it may be
subject to the imposition of rules of access for participants on commercial
terms, the determination of standards, the giving of enforceable directions,
or the voluntary arbitration of disputes on technical standards.
The bill also provides for a comprehensive regime of prudential regulation
of the store-of-value backing purchased payment facilities. This will
apply to all forms of such facilities, including stored value cards, travellers
cheques and Internet cash facilities.
The Payments System
The payments system is the set of arrangements for transferring funds
among members of the community. In modern society, all payments have one
or two basic foundations, namely cash, or an instruction to transfer a
claim to cash.
A payment system consists of the infrastructure which facilitates the
several million payments made each day in Australia, that is, the mechanics
of how individuals, businesses and governments are enabled to meet their
monetary obligations to others. A safe and reliable payments system is
also essential for the smooth functioning of a country's economy.
The payment system comprises:
- a wide and evolving range of payment instruments such as cash and
non-cash payment instruments like cheques, plastic transaction cards
and electronic funds transfer systems;
- banks and non-bank financial institutions with facilities for recording,
communicating, distributing and settling transactions and, in most cases,
for holding transaction balances; and
- related services provided by industry bodies and government to coordinate
and supervise operations.
The risks, which are of particular interest to those responsible for
managing the national payments system, come from exposures between institutions'
participation in the payments clearing and settlement process. These risks
would crystallise if an institution were unable to meet its settlement
obligations to other participants in the payments system.
Reforms to the Financial System
The Australian financial system has been the subject of numerous government
inquiries. An important facet of public policy has been the desire of
government to keep up to date with developments in financial markets,
finance products and technology.
Government appointed review committees known as the Manning Committee
(1964), the Rae Committee (1974), the Campbell Committee (1981), the Martin
Committee (1984) and the Wallis Committee (1997), and the political recognition
of the value of competition as a rationalisation for economic growth,
have led to fundamental changes in the Australian financial system since
the late 1970's.
The key objective driving reform in payments clearing and settlement
in Australia is the enhancement of the safety and integrity of the system.
It is also important to improve the efficiency with which payments instructions
are handled and funds made available, and to promote greater competitive
equity among service providers.
The Wallis Committee
The Wallis Committee was set up to stocktake the results of financial
deregulation of the Australian financial system since the early 1980's,
to establish a common regulatory framework for overlapping financial products
and to propose ways of dealing with further financial innovation.
The Final Report of the Financial System Inquiry (FSI), chaired by Mr
Stan Wallis (President of the Business Council of Australia), was released
in April 1997. A number of recommendations were made to intensify competition
and efficiency in the financial system, including recommendations for
substantially streamlined regulatory arrangements.
Of special relevance to banking law, the Committee recommended the formation
of a Payments System Board under the control of the RBA to regulate the
payments system; liberalisation of access to the clearing system; regulation
of stored value cards; and laws to allow for electronic commerce.
In response to the Wallis Committee Report, the Treasurer announced(1)
that the Government intends to institute a wide-ranging set of financial
system reforms. With respect to the payments system, the Government accepted
the Committees' recommendations.
This bill details the proposed new regulatory framework for the payments
system, which is being introduced consistent with the recommendations
of the FSI.
Amendments to the Reserve Bank Act 1959, as provided for in the
Financial Sector Reform (Amendments and Transitional Provisions) Bill
1998, provide for the creation of the Payments System Board (PSB)
within the RBA to provide for policy making in relation to the payments
system and to increase the accountability of the RBA in relation to its
role in the payments system.
Regulation of Payment Systems
Clause 11 provides that the RBA may designate a payment system
where it considers it to be in the public interest.
A payment system is defined in clause 7 to mean '... a
funds transfer system that facilitates the circulation of money, and includes
any instruments and procedures that relate to the system.'
The meaning of public interest is set out in Clause 8,
which seeks to inject financial safety, efficiency, competitiveness and
systemic risk considerations into the concept.
Once designated, clause 12 enables the RBA to impose an access
regime on the participants in that designated payment system.
Clause 14 enables the RBA to vary an access regime.
Clause 15 provides for when an access regime ceases to be in force,
namely:
- the access regime contains an expiry date and that date is reached;
or
- the RBA, on application of the participants in the designated payment
system concerned, revokes the access regime; or
- the RBA revokes the access regime on its own initiative; or
- the payment system concerned ceases to exist or ceases to be a designated
payment system.
Clause 16 provides a person who is denied access to a designated
payment system with the capacity to request that the RBA use its power
under clause 21 to remedy the situation.
Access, in relation to a payment system, is defined in clause
7 to mean 'the entitlement or eligibility of a person to become a
participant in the system, as a user of the system, on a commercial basis
on terms that are fair and reasonable.'
Clause 17 provides an additional, or alternative, remedy to clause
16 by providing that a person who is denied access to a designated
payment system may take the matter to the Federal Court.
Clause 18 provides the RBA with the capacity to determine standards
to be complied with by participants in a designated payment system. Any
such standards may be varied or revoked by the RBA. Failure to comply
with a standard is not an offence, but it may lead to a direction being
given under clause 21.
Clauses 19 and 20 provide that the RBA may arrange for the arbitration
of a dispute between parties to a designated payment system where the
dispute raises concerns related to the safety, efficiency or competitiveness
of payment systems or raises systemic risk concerns for the financial
system as a whole.
A dispute being settled by arbitration does not prevent a person from
taking the matter to court unless otherwise ordered by the court.
Clause 21 provides that if the RBA considers that a participant
in a designated payment system has either failed to comply with a standard
or has failed to comply with an access regime, the RBA may give a direction
to that participant.
The direction is to require that a participant take, or refrain from
taking, a particular action that the RBA considers appropriate. Such a
direction is to be consistent with any applicable access regime or standard.
Failure to comply with a direction will be an offence.
Regulation of Purchased Payment Facilities
Part 4 comprising clauses 22-25 provides the framework
for the regulation of purchased payment facilities, such as smart cards
and electronic cash. As noted in the Explanatory Memorandum, purchased
payment facilities embody the unique characteristic that consumers pay
for the facility using conventional means, cash for example, and rely
on the holder of the stored value backing that facility to subsequently
redeem that value.(2)
Part 4 proposes regulation designed to provide security to the
store of value in the interests of protecting consumers and to promote
public confidence in these systems while increasing the level of competition
and efficiency.
The explanatory memorandum states that the central regulatory provision
of Part 4 is the requirement that holders of the stored value backing
purchased payment facilities be an authorised deposit-taking institution
(ADI) or have an authority or exemption issued by the RBA. However, the
provisions of Part 4 are expressed to apply only to constitutional
corporations(3), presumably for constitutional law reasons. It would seem,
therefore, that neither individuals nor non-corporate bodies would be
so regulated.
Clause 23 provides that a corporation may apply to the RBA for
the authority to be a holder of the stored value of a class of purchased
payment facilities. The application process is outlined in Clause 27.
The RBA may impose, vary or revoke conditions on the authority. These
conditions would be directed at ensuring the corporation is able to meet
its obligations.
Clause 24 provides that the RBA may give a direction to a corporation
that has been granted an authority under clause 23 if the RBA considers
that the corporation has failed to comply with a condition of the authority.
The direction will be to require the corporation to take specified action,
or to refrain from specified action, as the RBA considers appropriate
having regard to the failure.
Clause 25 empowers the RBA to grant exemptions to a corporation,
or a class of corporations, which are not authorised deposit-taking institutions
within the meaning of the Banking Act 1959, or which have not been
granted authority by the RBA under clause 23. The exemption continues
to be in force until it is revoked, which the RBA may do if it no longer
believes that the corporation will be able to meet its financial obligations.
Miscellaneous Provisions
Clause 26 provides the RBA's information collection powers applicable
to participants in payments systems, whether designated or not, and corporations
authorised or exempted to hold the stored value of purchased payment facilities.
It should be noted that the RBA will not be able to require non-corporate
bodies or individuals to provide information under this provision, unless
perhaps, they are participants in a 'designated payment system' as distinct
from a 'payment system'. This is so by virtue of the definition of participant
in a payment system in clause 7, discussed further at the end
of this digest.
Clause 27 provides that the RBA may determine the requirements
for applications made in relation to this Bill.
Clause 28 outlines the obligation for consultation that must be
undertaken by the RBA when imposing or varying an access regime, or a
standard of a designated payment system.
Clause 29 outlines the notification obligations of the RBA with
regard to the determination or variation of a standard, or the imposition
or variation of an access regime.
Possible Shortcomings
- The provisions of Part 3 relating to the regulation of designated
payment systems will not apply to non-corporate bodies or individuals,
unless the rather not so obvious, and perhaps, dubious distinction can
be drawn between a participant in a payment system and a 'participant
in a designated payment system'. Individuals and non-corporate bodies
participating in a barter system, for example, would most likely fall
outside the scope of this Bill.
- This is because the definition of participant in a payment system
in clause 7 is expressed to relate only to corporations.
This distinction is also relevant to sub-clause 26(1), which
relates to Part 3.
- As indicated earlier, Part 4 does not appear to apply to non-corporate
bodies or individuals. Furthermore, the lack of power to regulate in
this regard could only be overcome if the RBA designated such a payment
system under clause 11, assuming the distinction drawn above
is a valid one.
1. Statement by the Treasurer, The Hon Peter Costello MP, 2 September
1997 together with associated documentation tabled in the House of Representatives.
2. Headnote to Part 4 of the Explanatory Memorandum, at p.21.
3. A constitutional corporation is defined in clause 7
to mean 'a corporation to which paragraph 51(xx) of the Constitution
applies.'
Simon Lang
22 April 1998
Bills Digest Service
Information and Research Services
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ISSN 1328-8091
© Commonwealth of Australia 1998
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Published by the Department of the Parliamentary Library, 1998.
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