Australia's Labour Government has announced plans to modernise Australia's financial system by implementing legislative reforms in relation to payments, financial market infrastructure, digital wallets, buy now pay later and cryptocurrencies.
The Treasurer, Jim Chalmers, and Assistant Treasurer and Minister for Financial Services, Stephen Jones, said the government will seek to embrace new financial opportunities while acknowledging Australia's regulatory regime has fallen behind.
Unfortunately, our regulatory architecture has not kept pace with changes in the market, including the advent of new digital products and services.
The latest announcement follows the government's past promises to lead the way in regulating crypto exchanges and custody to provide greater protection for consumers and undertake a token mapping exercise to help formulate those reforms (now delayed to early next year). These build on the bi-partisan Senate Report led by Senator Bragg and recommendations from that Report.
The government is promising to:
Update and strengthen Australia's payments system;
Strengthen financial market infrastructure;
Establish a regulatory framework for Buy Now Pay Later; and
Establish a framework for the licensing and regulation of crypto service providers.
A consultation paper on payment system reforms has also been released with responses due by 6 February 2023. The consultation is intended to underpin the preparation of a Strategic Plan for the future of Australia's payment system to be released in the first quarter of 2023.
The Payment Systems (Regulation) Act 1998 is set for an update giving the Reserve Bank of Australia (RBA) greater regulatory oversight over emerging payment systems, which the government considers should include digital wallet providers. This is the most surprising inclusion in this announcement as it has not been something the subject of previous policy announcements.
The government is considering a new licensing framework for payment services providers and additional oversight over nationally significant payment services or platforms.
The RBA is continuing its work on CBDCs which will involve a CBDC pilot in 2023:
We will continue our work with the RBA to explore the policy case for an Australian central bank digital currency.
The Government also looks set to increase the RBA's powers to oversee financial market infrastructure and foster competition in relation to clearing and settlement activities. This will be closely watched given the recent ASX distributed ledger for clearing being abandoned.
The Government's token mapping exercise will involve the release of a consultation paper in early 2023 to inform which features of digital assets should trigger regulation under financial services laws as well as what kinds of custody and licensing infrastructure should be created to address those functions. Following the token mapping exercise, the government will consult on custody and licensing of crypto exchanges before introducing legislation. This process was to be accelerated in light of the recent FTX collapse, with Token Mapping commencing this year, but that token mapping has been moved back in this announcement.
The Government's latest announcements are a welcome indication that it intends to take action to modernise Australia's financial system architecture to respond to new technology, particularly decentralised technology.
In many ways, the proposed reforms are a continuation of reforms anticipated by the previous Government prior to the last election.
They are likely to represent "once in a generation" type reforms that will shape Australia's financial and payment system in the years ahead. There are important questions to be discussed and we anticipate significant policy debate on these issues in 2023.