History and purpose of the Bill

The purpose of the Treasury Laws Amendment (Payments System Modernisation) Bill 2025 (the Bill) is to amend the Payment Systems (Regulation) Act 1998 (PSRA) to update Australia’s payments system regulatory framework. The Bill establishes a framework for designating special payment systems and introduces new regulatory oversight measures, including the ability for the Minister to direct nominated special regulators. The Bill also updates the penalty regime in the PSRA.

These amendments were initially introduced in Schedule 8 of the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023 (original Bill) in November 2023. When the original Bill was split in the Senate into 2 Bills on 28 November 2024, the payments system amendments were placed in Schedule 8 of the Treasury Laws Amendment (Miscellaneous Measures) Bill 2024, which was not debated and lapsed when the Parliament was prorogued for the 2025 federal election. Other than the commencement date, there are no differences between Schedule 8 of the original Bill and the current Bill. This Bills Digest incorporates information included in the Bills Digest on the original Bill.

Background

Nature of the payment systems

According to the RBA:

The ‘payments system’ refers to arrangements which allow consumers, businesses and other organisations to transfer funds usually held in an account at a financial institution to one another. It includes the payment instruments – cash, cards, cheques and electronic funds transfers – which customers use to make payments and the usually unseen arrangements that ensure that funds move from accounts at one financial institution to another.

According to the 2021 payments system review (discussed below):

Payment systems can be broadly categorised as cash or non-cash payment systems. Cash payment systems involve a range of rules, arrangements and physical infrastructure for the printing, manufacture, monitoring, transfer, distribution and storage of money in its physical form of coins and notes. A defining feature of cash payment systems is the role of logistics and security in enabling the safe and efficient distribution of cash across the economy.

In contrast, non-cash payment systems involve the electronic movement of funds rather than the physical exchange of money. The movement of monetary value occurs through the exchange of payment instructions and adjustments of account records. The arrangements supporting these transfers – the messaging standards, security protocols and technological infrastructure – all form part of non cash payment systems (p. 2).

Payments system review (2021)

The Morrison Government commissioned a payments system review, which reported in June 2021. The report of the review commented (emphasis in the original):

The payments system plays a key role in the Australian economy. It facilitates Australia’s economic activity by providing a safe, efficient and effective way for Australians to exchange money for goods and services. Over time, the payments system has expanded in size and complexity to such an extent that it should be thought of as the payments ecosystem. Technology has enabled new methods of payment and has led to the entry of a range of new providers offering new services using traditional payment infrastructures. Consumers are also adopting digital payment methods in record numbers, further accelerating the transformation in the payments ecosystem towards greater digitalisation.

Despite significant changes to the payments ecosystem, the regulatory architecture, which includes a range of regulatory agencies, industry bodies and the government, has remained relatively unchanged for over two decades. It is vital that the regulatory architecture supporting our payments system can continue to instil confidence and protect the security of the system while promoting innovation and competition in a way that enhances the user experience. (p. vii)

Of the 15 recommendations in the Report, the most relevant recommendations to the Bill were numbers 6 and 7. These were:

Recommendation 6: Expand definition of payment system in the PSRA

The RBA should be better positioned to regulate new and emerging payment systems that are part of the changing and growing payments ecosystem.

Expanding the definition of a payment system will broaden the RBA’s ability to designate new and emerging payment systems under the Payment Systems (Regulation) Act 1998 (PSRA), where it is in the public interest as defined in the PSRA.

Recommendation 7 – Introduce a Ministerial designation power

The Treasurer should have the power to designate payment systems and participants of designated payment systems where it is in the national interest to do so. The designation power includes the power to direct regulators to develop regulatory rules and the power for the Treasurer to give binding directions to operators of, or participants in, payment systems. (p. xii)

Consultations from December 2022 to February 2024

Between December 2022 and February 2023, the Treasury conducted consultation on A Strategic Plan for the Payments System, ‘with a view to supporting the resilience of payments system, strengthening the powers of regulators to adapt to new payments methods and promoting the transition to more modern payments infrastructure’. Treasury received 52 public submissions and 8 confidential submissions. The resulting Strategic Plan, informed by the consultation, was released in June 2023.

Between June and July 2023, Treasury undertook another consultation on proposed payment systems reforms. Input was sought on a list of payment functions ‘that are intended to underpin a new licensing framework for payment service providers’ (p. 4). The proposed payment functions included stored-value facilities such as payment stablecoins (p. 5) and payment facilitation services such as Buy Now Pay Later and digital wallets (p. 10). Treasury received 57 submissions, including 12 confidential submissions.

In October  2023, Treasury launched consultation on an exposure draft of the proposed amendments to the PSRA arising from the June-July 2023 consultation. 25 submissions, including 3 confidential submissions, were received. The exposure draft proposed to update the PSRA by:

• expanding the definitions of “payment system” and “participant” to ensure the Reserve Bank of Australia has the ability to regulate new and emerging payment systems, such as digital wallet providers and Buy Now Pay Later service providers
• introducing a new ministerial designation power that will allow particular payment services or platforms that present risks of national significance to be subject to additional oversight by appropriate regulators.

Between December 2023 and February 2024, Treasury conducted a consultation on a licensing framework for payment service providers. The consultation paper proposed that the updated regulatory framework include:

• an updated list of payment functions and leverage the Australian Financial Services framework to regulate payment service providers
• a set of regulatory requirements to facilitate greater access to payment systems
• graduated regulatory requirements for stored-value facilities including stablecoins
• a framework for industry standard-setting
• a new rule-making power to enable the introduction of a mandatory revised ePayments code to provide enhanced consumer protections. 

The Treasurer and the Assistant Treasurer also issued a joint media release on the consultation on 8 December 2023. The Government has not published any submissions for this round of consultation.

Committee consideration

At the time of writing, the Bill has not been referred to, or commented on, by any parliamentary committees. However, the original Bill was referred to the Senate Economics Legislation Committee for inquiry, and received comment from the Senate Standing Committee for the Scrutiny of Bills.

Senate Economics Legislation Committee

In 2024, the Senate Economics Legislation Committee conducted an inquiry into the original Bill. The Committee reported in May 2024. The Committee received 42 submissions, of which the following submissions commented on Schedule 8.

Fintech Australia commented on the importance of oversight and adequate consultation and on the proposed national interest test. In relation to consultation requirements, Fintech Australia submitted:

A cautious approach to new payments reform is particularly important given a designation is likely to have a significant regulatory impact on participants. Adequate public consultation and impact analysis would ensure the power is subject to appropriate guardrails and is an informed and transparent decision. As noted in our previous submission to the exposure draft… under the Consumer Data Right framework... the Minister must be satisfied before making a designation that the Treasury has conducted consultation and analysis about the designation and published a report about that analysis and consultation.

…

Regulators should assess the competition impact of obligations and an evidence-based review of impacts of new obligations. This may include being required to demonstrate that a market is uncompetitive or a market failure exists before imposing regulations designed to address those exact situations. (pp. 2-3)

In relation to the proposed national interest test that the Minister is required to apply when  designating a payment system as a special designated payment system, nominating a special regulator, or giving a direction to such a regulator (proposed sections 11B, 11D and 11F of the PSRA at item 29 of the Bill) Fintech Australia recommended that ‘competition’ be added as an additional factor to be considered under the test and noted that payment system regimes in the UK and New Zealand:

require consideration of matters like the nature of the system, the number and value of the transactions the system processes and the relationship between the system and other payment systems. Fairness and consistency for participants and proportionate regulatory outcomes for systems are also important considerations. We would recommend including similar considerations in the national interest test too (p. 3).  

Block (a global technology company that operates Afterpay and Square in Australia) welcomed some aspects of the proposed reforms but was concerned about the proposal to ‘extend regulation of surcharging to BNPL products’ :

We believe this would increase the cost of living for millions of consumers, reduce competition in financial services, and harm the Australian FinTech sector, which already faces many barriers to competing in a highly concentrated market. Without a robust and careful review of the impact of a larger payments regulatory perimeter—there is a real and highly concerning risk of deleterious impacts on consumers, competition and the broader economy (p. 1).

Block considered that ‘clear evidence of market failure’ should be required before new regulation is imposed:

Once market failure is established, a holistic and evidence-based assessment of the appropriate regulatory intervention must be conducted, including the risk of unintended consequences. (p. 2)

The Financial Services Council (FSC, which is a peak body that sets mandatory standards and develops policy for member companies in the financial sector) expressed concern with the apparent absence of a requirement for the Treasurer to consult with industry before designating a payment system as a special designated payment system, recommending:

the inclusion of a list of considerations the Treasurer should make in the process of making a designation and a positive duty to consult be included in the legislation.

The addition of these components would ensure that any designation made by the Treasurer in relation to payments system regulation is carefully considered and includes the input of industry, who can provide insights into the practicality of how these changes would impact their business and ultimately consumers. (p. 3)

Chartered Accountants Australia New Zealand (CAANZ) was concerned about the proposal to ‘empower the Minister to designate a special payment system separate, and possibly duplicating, a payment system of the Reserve Bank of Australia (RBA)’ (p. 3). It stated:

The proposed approach may result in a payments ecosystem that is complicated for consumers, businesses, and payment service providers to navigate. While we understand the current mandate of the RBA hinders its ability to regulate new and emerging payment methods, we support changing the RBA’s mandate rather than adding a significant amount of legislation that will result in confusion for all participants.

We support empowering the Minister to take a leadership role and identify the need for a special payments system in the national interest. We suggest such leadership should be limited to identifying the need and the authority to direct the RBA to stand up a special payments system to address this need. (p. 3)

Dr Scott Farrell , who led the Payments system review, submitted that the amendments proposed by the Bill were consistent with Recommendations 6 and 7 of the Review (set out above) and aligned with other jurisdictions that have vested designation powers in their responsible Minister, including the United Kingdom and Canada (p. 2).

The RBA and the Australian Banking Association (ABA) strongly supported the proposed amendments to the PSRA.

While the majority of the Committee supported the passage of Schedule 8 (pp. 50-51), Coalition Senators issued a dissenting report. The Coalition Senators quoted the submissions by Block and FinTech Australia (discussed above) regarding the need for greater oversight and consultation (including concerns about the RBA being interventionist and overreaching, and the desirability of the RBA demonstrating a market failure before regulating) (pp. 76–78). The Coalition Senators recommended that ‘rules or designations made by the Reserve Bank under the Act are disallowable’ (Recommendation 3, p. 78).

Senate Standing Committee for the Scrutiny of Bills

The Scrutiny of Bills Committee raised a number of concerns with provisions in Schedule 8 to the original Bill that would allow instruments to be made that the  Committee considered would not be subject to sufficient parliamentary oversight. Some of these provisions are discussed under Key issues and provisions, below.

Policy position of non-government parties/independents

At the time of writing, no comments on the Bill by non-government parties or independents could be identified.

As discussed above, in its dissenting report on Schedule 8 to the original Bill, the Coalition recommended that rules or standards made by the RBA should be disallowable, stating ‘[t]his is an important policy space, and the Parliament must have a view here. It shouldn’t be entirely delegated to a regulator’ (p.78 of the Senate Economics Legislation Committee’s inquiry report). Seeking to implement this position, Senator Jane Hume circulated amendments to the original Bill which would have amended section 11of the PSRA to provide that the RBA’s designation of a payment system is done by legislative instrument, rather than notifiable instrument, so that the instrument would be subject to disallowance and sunsetting.

Financial implications

The Explanatory Memorandum states that the financial impact of the measure is nil (p. 1). While this may be correct in relation to the establishment of the regime, once regulation begins to occur, there will be a cost. The Government has not indicated whether it expects this cost to be absorbed by the RBA and other nominated regulators, although the Explanatory Memorandum notes that relevant matters that may be considered by the Minister in determining whether to nominate a special regulator include ‘whether the nominated special regulator has the appropriate expertise, knowledge, resources and funding to carry out any functions’ (p. 13, emphasis added).

Key issues and provisions

Key issue: Updated definition of payments system and participant

Item 5 of the Bill inserts proposed section 7A into the PSRA to set out the definitions of payment system and participant.

Under proposed subsection 7A(1) a payment system is a system under which, or pursuant to which, either or both of the following occur:

• the making of payments or the transfer of funds and/or
• the transmission or receipt of messages that effect, enable, facilitate or sequence the making of payments or the transfer of funds.

The payment system includes any instruments or procedures that relate to that system.

This definition is broader than the current definition in the PSRA. According to the Explanatory Memorandum:

The current definition of payment system is limited to a funds transfer system that facilitates the circulation of money. This means that systems that facilitate payments in non-monetary digital assets or that provide services which facilitate a payment being made, but do not action the payment itself, cannot be considered a payment system under the PSRA. The amendments ensure such systems are covered by the definition of ‘payment system’. The new definition of payment system still includes any instruments or procedures that relate to the system in question. These instruments or procedures are not intended, in themselves, to be considered a payment system.  [emphasis added] (p. 7)

A participant in a payment system is a constitutional corporation[1] that operates, administers or participates in the payment system or provides services that enable or facilitate one or more of the following:

• the operation or administration of, or participation in, the payment system
• the making of payments, or the transfer of funds, under the payment system
• the transmission or receipt of messages under the payment system that effect, enable, facilitate or sequence the making of payments or the transfer of funds.

As set out in the Explanatory Memorandum, the new definition of participant is intended to  ensure that:

all entities involved in the payments value chain are captured including entities with or without a direct relationship to a payment system. One example is digital wallet services which facilitate payments by storing digital representations of payment cards. The amended definition reflects that some entities acting as intermediaries between a person and one or multiple payment systems play an important role in facilitating or enabling payments from one party to another (p. 9).

Together the new definitions will capture entities providing buy now, pay later products, digital wallet passthrough services such as ApplePay and Google Wallet, and services that facilitate payment in crypto assets.

This responds to Recommendation 6 of the Payments system review.

Key issue: Ministerial powers

Designated payment systems

Item 20 of the Bill repeals and replaces subsection 10(1) of the PSRA, which currently flags that the RBA has power to designate payment systems under Division 2 of Part 3. The existing power of the RBA to designate a payment system by notifiable instrument under subsection 11(1) (in Division 2 of Part 3) remains unchanged. Item 27 inserts proposed subsection 11(1A) into the PSRA to put this beyond doubt.

Proposed paragraph 10(1)(b) empowers the Minister to designate a payment system as a special designated payment system—provided that the Minister considers that doing so is in the national interest. Item 19 inserts proposed section 8A into the PSRA so that the national interest consideration by the Minister may include those matters which the RBA would consider as a matter of public interest.[2] The Minister must consider any other matters that are materially relevant to determining the national interest.

The Explanatory Memorandum advises that:

 [i]ncluding a ministerial power to designate payment systems when it is in the national interest will allow the Minister to direct a regulator to address issues that are outside the scope of the RBA’s current powers under the PSRA (p. 10).

This implements Recommendation 7 of the Payments system review.

In addition, the Minister is empowered to nominate special regulators for special designated payment systems and to give directions to them about the performance of their functions: proposed subsection 10(1A) inserted by item 21.

Item 29 inserts proposed sections 11B to 11G into the PSRA. Those sections operate as follows:

• the Minister may make a notifiable instrument (that is, an instrument which is not disallowable under section 7 of the Legislation Act 2003 and does not automatically sunset) designating a special designated payment system if it is in the national interest to do so: proposed subsection 11B(1)
• before doing so, however, the Minister must consult with the RBA and each special regulator and consider whether there are any alternatives to such designation: proposed subsection 11B(3)
• the RBA and/or any entity prescribed as such by regulation will be a special regulator: proposed subsection 11C(1)
• the Minister may, subject to conditions, make a legislative instrument that nominates one or more special regulators if it is considered to be in the national interest: proposed subsection 11D(1)
• the Minister may give the following directions by legislative instrument to a nominated special regulator:
  • a matters direction specifying those matters that must be considered before performing or exercising a function or power
  • a purposes direction specifying the purposes for which a function or power must, or must not, be exercised: proposed section 11F.

These directions will not be subject to disallowance or sunsetting (see section 9 and section 11 of the Legislation (Exemptions and Other Matters) Regulation 2015).

Scrutiny of Bills Committee

The Scrutiny of Bills Committee commented on a number of the provisions that authorise the making of instruments under the Bill including, but not limited to, the power in proposed subsection 11B(1) to designate a payment system as a special designated payment system by notifiable instrument if the Minister considers doing so is in the national interest.

Of concern to the Committee was that notifiable instruments made under proposed subsection 11B(1), (in addition to other instruments made under the Bill) would not be subject to Parliamentary scrutiny due to their status as non-legislative instruments.

After considering the former Assistant Treasurer’s response (p. 57), the Committee stated:

The committee also understands that consideration of the national interest is a precondition to the exercise of the power under at least proposed subsection 11B(1). However, if the exercise of such power was subject to disallowance the Parliament would be cognisant of this in considering any proposal to disallow an instrument. Views of the Executive concerning the national interest would be appropriately weighed by a house of the Parliament and would inevitably be a subject of debate in the rare situation that a proposal to disallow such an instrument was put to that house. The committee considers that the Parliament should be trusted to exercise its powers with due regard to the national interest. (p. 58)

In addition and as discussed above, Liberal Senator Jane Hume circulated proposed amendments to existing section 11 to provide that the RBA’s designation of a payment system is done by legislative instrument rather than notifiable instrument, so that the instrument would be subject to disallowance and sunsetting.

Key issue: access regimes and standards

Where the RBA has designated a payment system, it may then impose an access regime or establish standards to be complied with by participants in the system. By way of example, there is an access regime for the ATM system which sets a cap on the fee that an existing participant in the ATM system can charge a new entrant to establish a direct connection and the elimination of interchange fees. The RBA imposes access regimes by legislative instrument under subsection 12(1) of the PSRA. Such instruments are not disallowable by the Parliament and are not subject to sunsetting (Table item 26 in section 10 and Table item 50 in section 12 of the Legislation (Exemptions and Other Matters) Regulation 2015).

Item 33 in the Bill inserts proposed subsection 12(1A) into the PSRA so that a nominated special regulator may, by legislative instrument, impose an access regime on participants in a special designated payment system. However, as with access regimes imposed by the RBA, these instruments are  not subject to disallowance or sunsetting. According to the Explanatory Memorandum ‘allowing instruments made under these sections to be disallowable may cause significant commercial uncertainty and delay’ (pp. 17–18).

The RBA may determine standards for designated systems by legislative instrument under subsection 18(1) of the PSRA. Such instruments are not disallowable by the Parliament and are not subject to sunsetting (Table item 26 in section 10 and Table item 50 in section 12 of the Legislation (Exemptions and Other Matters) Regulation 2015).

Item 61 of the Bill inserts proposed subsection 18(1A) into the PSRA so that a nominated special regulator may, by legislative instrument, determine standards to be complied with by  participants in a special designated payment system. However, as with standards imposed by the RBA, these instruments are  not subject to disallowance or sunsetting.

The Scrutiny of Bills Committee sought the Treasurer’s advice as to why it is necessary and appropriate for instruments made under proposed subsections 12(1A) and 18(1A) to be exempt from disallowance (p. 57). After considering the former Assistant Treasurer’s response (p. 57), the Committee stated:  

While this response slightly expands on the justifications provided for the exemptions in the explanatory memorandum, the committee is of the view that the explanation provided falls short of the robust justification expected by the committee for any exemptions from parliamentary scrutiny.

The fact that an instrument will fall within one of the classes of exemption in the Legislation (Exemptions and Other Matters) Regulation 2015 is not, of itself, a sufficient justification for excluding parliamentary disallowance. The committee agrees with the comments of the Senate Standing Committee for the Scrutiny of Delegated Legislation that ‘any exclusion from parliamentary oversight…requires that the grounds for exclusion be justified in individual cases, not merely stated’.

The committee notes that the making of the determinations and notifiable instruments in question is an exercise by the Executive of legislative power that has been delegated to it by the Parliament in pursuance of the objectives of a scheme legislated by the Parliament. As such, the committee is of the view that, unless there is a clear and well justified reason not to do so, the Parliament should maintain oversight of such instruments through the disallowance process. (p. 57)

Key issue: enforcement regime

The Bill proposed amendments to the enforcement regime in the PSRA by:

• introducing civil penalty provisions
• introducing enforceable undertakings and
• increasing existing maximum criminal penalties.

Offences and civil penalties

Currently offences exist in the PSRA for:  

• failure of a participant in a designated payment system to comply with a direction from the RBA, with a maximum penalty of 50 penalty units ($16,500) (section 21)  
• a constitutional corporation (that is not an authorised deposit‑taking institution) holding the stored value of a purchased payment facility when not authorised or exempted, with a  maximum penalty of 200 penalty units (currently $66,000) (section 22)
• failure to comply with a direction given to a constitutional corporation that has been given authority to be the holder of the stored value of a class of purchased payment facilities, with a  maximum penalty of 50 penalty units (currently $16,500) (section 24)
• failure to give the RBA information, with a maximum penalty of 200 penalty units (currently $66,000) (section 26) .

The Bill amends sections 21 (items 102 to 106) and 26 (items 107 to 115) to introduce civil penalties and increase the maximum penalties available for the offences. In the amended provisions, the maximum civil and criminal penalties under section 21 will be 100 penalty units ($33,000), and 200 penalty units ($66,000) under section 26. Sections 22 and 24 are not amended and the current maximum criminal penalties will remain.

Item 116 of the Bill inserts proposed section 30 into the PSRA to provide that each civil penalty provision is enforceable under Part 4 of the Regulatory Powers (Standard Provisions) Act 2014 (Regulatory Powers Act). 

Enforceable undertakings

The Bill introduces a framework for accepting and enforcing undertakings. Item 119 of the Bill inserts proposed section 30A into the PSRA to allow:

• the RBA to accept an undertaking from a participant in a designated payment system or a special designated payment system and
• a nominated special regulator to accept an undertaking from a participant in a special designated payment system

in connection with a matter in relation to which the RBA or nominated special regulator has a function or power under the PSRA, regulations or legislative instruments made under the PSRA (including access regimes imposed under section 12 and standards determined under section 18). The participant may withdraw or vary the undertaking at any time, but only with the consent of the relevant regulator (proposed subsection 30A(4)).

If the RBA or the nominated special regulator considers that the undertaking has been breached, it may apply to the court for an order:

• directing the participant to comply with the undertaking
•  directing the participant to pay to the Commonwealth some or all of the financial benefit that the participant has obtained directly or indirectly that is reasonably attributable to the breach
• directing the participant to compensate any person who has suffered loss or damage as a result of the breach or
• any other order that the court considers appropriate (proposed subsection 30A(6)).