New stored-value rules sought in regulators' Issues Paper

Australia’s Council of Financial Regulators has released an Issues Paper [pdf] to review regulation of stored-value facilities and their role in retail payments.

The paper is a direct response to the 2018 inquiry by the Productivity Commission into Competition in the Australian Financial System which called for the Council of to review the regulatory framework for purchased payment facilities (PPFs), one type of stored value instrument felt to need regulation.

The Issues Paper notes that the kind of stored value cards envisaged under existing regulations never took off and that PayPal is the only current PPF provider regulated in Australia. But it also observes that such instruments are becoming common in other nations, represent innovation and therefore likely to appear in Australia.

But the Paper also notes that APRA, ASIC and the Reserve Bank all currently have a role in regulation of PPFs. Hence the aims of the Paper being:

• To identify opportunities to simplify the regulatory framework for stored-value facilities;
• To ensure that regulation does not pose an undue obstacle to innovation and competition, while maintaining appropriate levels of consumer protection and system-wide safety;
• To identify any changes necessary to enable regulation to adapt to recent and prospective developments in the payments market, including those associated with advances in technology and new participants;
• To identify opportunities to improve the ‘competitive neutrality’ of regulation;
• To improve the transparency and clarity of regulation, from the perspective of regulated entities, potential new entrants, and consumers and other users.

To address those issues, stakeholders have been asked to consult on matters including:

• The outlook for stored-value facilities in Australia;
• How regulation can appropriately balance consumer protection aims while supporting an innovative and competitive industry;
• Whether the current definition of a PPF a source of confusion for potential new entrants, including foreign entities;
• Whether tiered regulation is appropriate, depending on value allowed by a stored-valued instrument or whether their issuers are effectively deposit-takers.

Another issue the Paper ponders is whether closed-loop stored-value systems like AliPay are effectively beyond the control of regulators, as currency never leaves the community. It also grazes on issues like potential for trans-national funds transfers made using stored-value instruments that operate in multiple currencies.

Interested parties are invited to send written submissions by 19 October 2018 and are advised that the next step in the process will see the Council “make recommendations on the overall framework for the regulation of stored-value facilities” as a result of submissions. Stakeholders are advised that they can expect to “have further opportunity to comment on any specific changes to regulation administered by relevant agencies that may arise from the recommendations of this review.”