Updating Australia’s Payments System to embrace the Digital Economy

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As economies develop, Governments seek to regulate various components to ensure a safe, efficient and effective environment.  Australia’s payments system plays a key role in our economy, by facilitating and regulating the exchange of money for goods and services.

The system is complex and has become more so in recent years with the development of innovative digital solutions such as buy now pay later, and the increasing use of cryptocurrency assets.

Last week, the Federal Government released a paper “Transforming Australia’s Payments System” that has identified the need for Australia’s regulatory framework governing the payments system to be updated for the 21st Century.

The Government has considered recent recommendations from the Farrell Payments System Review and has agreed with all but one of the recommendations made.

These are summarised in the paper and include:

  • Expanding the definition of the payment system to allow the RBA to regulate new and emerging payment systems.
  • Developing a list of payment functions that require regulation.
  • Introducing a single, payments licencing framework to facilitate transparent access to payment systems.
  • Educating consumers and businesses in what may be a fundamental shift in how we transact with one another in Australia and worldwide.

In addition, recommendations from Senate Select Committee on Australia as a Technology and Financial Centre (Senate Report) and the Parliamentary Joint Committee Inquiry into Mobile Payments and Digital Wallets (PJC Inquiry) have also been considered, with many recommendations also accepted. These include:

  • Establishing a market licensing regime for Digital Currency Exchanges.
  • Updating the Anti-Money Laundering and Counter-Terrorism Financing regulations to ensure they are fit for purpose.
  • Amending the CGT rules to ensure digital transactions only create a CGT event when there is a definable capital gain or loss.

For a closer look at all the recommendations, you can find a copy of the paper issued by the Government, here: Transforming Australia’s Payment System

In summary, the paper states that by the end of 2022 the Government will have:

  • Settled the framework to replace the current one-size-fits-all payment licensing arrangements with a functionally based framework adopting tiered, risk-based regulatory requirements.
  • Obtained a report from the Board of Taxation on an appropriate framework for the taxation of digital transactions and assets.
  • Undertaken a mapping exercise of existing cryptocurrencies and tokens to better inform consumers and others of the risks and benefits that arise.
  • Examined the potential of so-called Decentralised Autonomous Organisations (DAOs) and how they can be incorporated into Australia’s legal and financial regulatory frameworks; and
  • Obtained advice from the Treasury and the RBA on the feasibility of a retail Central Bank Digital Currency in Australia.

These changes to Australia’s payment system are needed to keep up with the rapidly developing digital economy, supercharged by the recent pandemic. I would encourage readers to keep abreast of the activity in this area as there will be implications not only for businesses but also for consumers interacting with Australia’s economy in the future, which is likely to be all of us.

If you are interested in this developing area, look out for our future updates.

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