Government outlines how it will ‘modernise’ Australia’s financial system

Treasurer Jim Chalmers said the reforms are about ensuring Australia has a financial system that works for consumers, businesses, and investors.

“Unfortunately, our regulatory architecture has not kept pace with changes in the market, including the advent of new digital products and services,” he said.

“We will work closely with regulators, industry, and consumer and business advocacy groups over the coming months to get these reforms right.”

Mr Chalmers said the government will release a strategic plan for the future of Australia’s payments system in the first quarter of 2023.

The plan will be done in collaboration with regulators, industry, consumer, and business representatives. 

“The Strategic Plan will be a comprehensive, long-term strategy that sets out the Government’s policy objectives and priorities for the payments system, which will also help coordinate decision-making between government and other stakeholders,” he said.

A consultation paper on the plan was released on Wednesday (14 December) and Mr Chalmers said it will help determine the key objectives and priorities and how it can be used to better coordinate action across the industry.

He said the government is also committed to updating the Payment Systems (Regulation) Act 1998 to ensure the Reserve Bank of Australia can regulate new and emerging payment systems such as digital wallet providers.

“We will also consult on a new Ministerial designation power that would allow particular payments services or platforms that present risks of national significance to be subject to additional oversight by appropriate regulators,” he said.

Additionally, the government will consult on a new payments licensing framework for payment service providers.

“This will provide clarity on the types of payment activities that are regulated, making it easy for a business to understand whether they require a licence and their associated regulatory obligations,” Mr Chalmers said.

“We will continue our work with the RBA to explore the policy case for an Australian central bank digital currency.”

The consultation paper can be viewed on the Treasury website.

The government will act on recommendations by the Council of Financial Regulators (CFR) to improve Australia’s financial market infrastructure.

Mr Chalmers said financial market infrastructure enables critical financial system operations including the issuance and trading of securities, Commonwealth and state government debt, access to liquidity and risk-management products, and the RBA’s implementation of monetary policy.

“A series of reviews by the CFR have identified deficiencies in the current regulatory framework for financial market infrastructure. Critically, the CFR identified the lack of a crisis regime to enable the RBA to step in and to ensure continuity of clearing and settlement services in the face of a crisis,” Mr Chalmers said.

“Clearing and settlement facilities perform a crucial function in the financial system by facilitating capital movement and the efficient operation of markets. In response, the Government will provide the RBA with powers to step in and resolve a crisis at a domestic clearing and settlement facility.

“We will also strengthen and streamline regulators’ licensing, supervisory, and enforcement powers in respect of financial market infrastructure to reduce the likelihood of a crisis occurring.”

The government has also said it will introduce legislation to facilitate competitive outcomes, should a competitor emerge and in the event of ongoing monopoly provision, in clearing, and settlement by providing ASIC and the ACCC with additional powers.

“Rule-making powers will allow ASIC, with ministerial approval, to quickly act to make rules to manage matters related to competition, such as pricing, access, governance arrangements and interoperability,” Mr Chalmers said.

“Together, these powers will set minimum, enforceable conditions to facilitate a competitive environment for clearing and settlement.”

Finally, the government will also take action to improve the regulation of crypto service providers and ensure additional safeguards for Australians.

“The next steps in the Government’s ongoing ‘token mapping’ work will include the release of a consultation paper in early 2023 to inform what digital assets should be regulated by financial services laws, and the development of appropriate custody and licensing settings to safeguard consumers,” Mr Chalmers said.

Following the release of token mapping, the government will consult on a custody and licensing framework next year before introducing legislation.