Regulate stored-value facilities: review

Stored-value facilities should form a new class of regulated product, a review recommends.

In conducting its review, the CFR consulted with current and prospective providers of SVFs, banks, fintech companies and international regulators. Picture: AFP

A review by the Council of Financial Regulators has recommended that stored-value facilities should form a new class of regulated product so they can potentially play a more prominent role in the payments system, like in other countries.

SVFs are payment services which enable customers to store funds in a facility to make future payments.

In countries like China, for example, mobile wallet services like AliPay and WeChat Pay have become popular, enabling users to make payments with funds loaded into the facility, as well as to access a range of other financial services.

Locally, PayPal is the only APRA-regulated provider.

The service enables a sender and a receiver to be parties to an online payment, using payment instruments such as credit cards, debit cards and bank accounts.

Customers can also hold a stored balance in their PayPal account and withdraw the funds to a linked bank account, pay for goods or services, or make peer-to-peer transactions in the PayPal network.

The CFR, which includes the Reserve Bank, the Australian Prudential Regulation Authority, the Australian Securities & Investments Commission and the Treasury, said it had sought to simplify the regulatory framework for SVRs in a way that was conducive to innovation.

It also wanted to provide appropriate consumer protections.

“The CFR recognises that payments is a fast-moving part of the financial system and some flexibility will be required to ensure that regulation is able to adapt to innovations,” the body said.

“An example of the type of innovation that could occur in this area is the recent attention on proposals to develop digital wallet facilities to provide payment services using ‘global stablecoins’.”

Regulation of SVFs, according to the CFR, should be graduated and commensurate with risks to consumers.

Certain SVFs and other payment products posing limited risk to consumers, such as small or limited-purpose facilities like store cards, should therefore continue to be largely exempt from most regulatory requirements.

In conducting its review, the CFR consulted with current and prospective providers of SVFs, banks, fintech companies and international regulators.

Among its other recommendations, the CFR said issuers of payment products holding client funds for only a short period of time to facilitate a payment should hold an Australian financial services license from ASIC.

ASIC should have the power to make compliance with the ePayments code mandatory, such as through a rule-making power, and APRA and ASIC should be responsible for regulating and licensing SVF providers.

This would be consistent with their mandates for prudential supervision and consumer protection.

The RBA, according to the CFR, should no longer be involved in regulating individual providers of SVFs, helping to streamline regulation in the market.

APRA on the other hand, should be responsible for prudential supervision of large SVFs which enable consumers to hold a significant amount of funds for long periods and to withdraw their funds on demand in Australian currency.

These facilities were likely to operate in a similar way to a bank deposit, “subject to the highest level of regulatory oversight within an updated regulatory framework for SVFs”.