Submissions to Treasury due by 6 November 2025 12 min read
The Federal Government recently released exposure draft legislation that would implement 'Tranche 1a' of its proposed regulatory reforms for payment service providers. It follows Treasury consultation in 2023, and would implement the first set of reforms.
The proposed changes would expand the scope of the Australian financial service licence (AFSL) regime to cover many payment-related services that are currently neither financial products nor financial services. This should not come as a surprise to the payments industry, as they are largely consistent with those proposed in the most recent consultation paper (Consultation Paper 2), which we covered in this Insight. Payment services providers (including those currently not required to hold an AFSL) should review their operations and the draft legislation to identify potential impacts, and must make any submissions to Treasury by 6 November 2025.
In this Insight, we summarise the key proposed changes and what they could mean for payment service providers.
Key takeaways
- Under the proposed changes, released on 9 October 2025, the current 'non-cash payment facility' financial product definition will be removed from the Corporations Act 2001 (Cth), to be replaced with new payment-related concepts, including 'payment instruments' and 'stored value facilities', so that relevant services (advice, dealing, custody, etc.) in relation to these products will be financial services for which an AFSL would generally be required.
- Payment initiation services, payment facilitation services and payment technology and enablement services would also become financial services for which an AFSL would generally be required.
- Existing providers of payment and related services, including those that currently are not required to hold an AFSL, should carefully review the draft legislation to confirm if they will be subject to new or modified AFSL obligations under the proposed regime. Submissions on Tranche 1a must be made to Treasury by 6 November 2025.
- Tranche 1a addresses only the licensing requirements and some key obligations under the AFSL regime. Proposed licensing exemptions, money safeguarding obligations, Australian Prudential Regulation Authority (APRA) powers, unclaimed money rules and a new ePayments Code-mandating power will be the subject of Tranche 1b. The common access requirements and industry standard setting body discussed in Consultation Paper 2 will be the subject of Tranche 2, to be released for consultation in 2026. The commencement and transitional provisions will also be included in a later exposure draft.
New financial products and services
Financial products
The draft legislation proposes to remove the existing 'non-cash payment facility' financial product and replace it with the following new financial products. While the existing definition can be difficult to apply, the new concepts will create their own challenges in terms of determining the boundaries of their application and whether specific services are caught.
| Financial product | Definition |
|---|---|
| Payment instrument |
A facility that provides the terms on which a person may, as the payer, use a particular method to make non-cash funds transfers of funds standing to the person’s credit under a facility. Examples include debit and credit card facilities, and online account management facilities, such as direct debit or PayTo facilities, and BPay facilities. |
| Stored value facility |
A facility under which: a. funds are transferred to a person without any instruction as to the further transfer of the funds; and b.another person acquires rights to redeem from a person amounts not exceeding the amount from time to time standing to the credit of the facility; and c. each such right may be exercised by a person who possesses the right (the initial holder of the facility or an assignee) or a person nominated by such a person by one or more methods that include making a non-cash funds transfer. Examples include prepaid cards and digital wallets that store value. |
|
Tokenised stored value facility (This replaces 'payment stablecoins' from Consultation Paper 2 and, strictly, is a kind of stored value facility.) |
A stored value facility in relation to which the following conditions are satisfied: a. each right to redeem a particular amount in respect of the amount standing to the credit or the facility is exercisable only by the person who possesses the digital token attached to that right; and b. the amount that may be redeemed in exercising that right is fixed and denominated in a single currency (whether Australian or foreign currency). Examples include stablecoins that reference a single currency. |
These definitions seek to be activity based and technology neutral. Each definition is also accompanied by a regulation-making power by which a facility can be declared not to be a payment instrument, stored value facility or tokenised stored value facility.
The draft legislation defines the following concepts to support the definitions of the new financial products:
- transfer of funds—includes any act or thing, or series or combination of acts / things, that may reasonably be regarded as the economic equivalent of a transfer of funds;
- funds—money, another medium of exchange prescribed by the regulations or a right to redeem either of those things. A digital token that does not fall within either of these things is not intended to be 'funds', even if it has value, but a tokenised stored value facility will be funds, as it would carry a right to redeem money; and
- non-cash funds transfer—a person (the payer) makes a non-cash funds transfer if:
- funds standing to the credit of the payer under a facility are transferred to another person (the payee) or to the credit of a different facility held by the payer (in the latter case, the payer is also the payee); and
- the funds are transferred to the payee on the instruction of the payer or payee; and
- the transfer does not involve the physical delivery of Australian or foreign currency in the form of notes and/or coins.
In relation to tokenised stored value facilities, the draft legislation also defines a 'major stored value facility provider' as a person who:
- is a stored value facility provider; and
- the total of the amounts standing to the credit of relevant facilities (ie stored value facilities that can be redeemed in Australian dollars and for which the issuer is required to hold an AFSL) and its related bodies corporate is more than an amount specified in the regulations (expected to be $200 million).
However, APRA prudential regulation of major stored value facility providers, as set out in the consultation papers, will be provided for in a later tranche of reforms.
Any conduct in relation to one of these financial products will only be a financial service if it is engaged in by a constitutionally covered corporation (ie a corporation covered by section 51(xx) of the Constitution, or a corporation as defined in s57A of the Corporations Act as originally enacted) or a representative of a constitutionally covered corporation.
Financial services
The draft legislation proposes amending the Corporations Act to insert a new kind of financial service, 'providing a payment service', which it defines as providing any of the following services:
| Service | Definition |
|---|---|
| Payment initiation service |
A person (the provider): a. takes action to initiate a non-cash funds transfer to be made by another person (whether or not the transfer is completed); and b. is not the issuer of the facility from the credit of which the funds are transferred or the payer, payee or a person interposed between the payer and payee, for the non-cash funds transfer; and c. is a constitutionally covered corporation or a representative of a constitutionally covered corporation. This service is taken to be provided to the person with whom the provider has an arrangement to initiate the non-cash funds transfer —this could be the payer or payee—and is taken to be provided each time the provider takes action to initiate a non-cash funds transfer. It is intended to cover direct debit and PayTo services provided to merchants, which enable them to offer the ability for their customers to pay directly from their bank account. |
|
Payment facilitation service (This was proposed to be a financial product in Consultation Paper 2.) |
A person (the provider) provides a facilitation service if: a. under an arrangement with another person, funds are transferred to the provider in connection with the making of a non-cash transfer; and b. the funds are so transferred on the basis that the provider will further transfer the funds in accordance with the instructions for the non-cash funds transfer; and c. the provider is a constitutionally covered corporation or a representative of a constitutionally covered corporation. This service is intended to cover merchant acquiring services and remittance services, among other things. |
| Payment technology and enablement service |
A person (the provider): a. takes action to: i. verify a person's identity for the purpose of enabling the person to make one or more non-cash funds transfers (whether in general or in connection with a particular non-cash funds transfer); or ii. transmit an instruction given by a person as the payer or payee in connection with the making of a non-cash funds transfer; and b. if the action is taken in relation to a particular non-cash funds transfer, is not the issuer of the facility from the credit of which the funds are transferred or the payer, payee or a person interposed between the payer and payee, for the non-cash funds transfer; and c. is a constitutionally covered corporation or a representative of a constitutionally covered corporation. However, verifying a person's identity will not be a payment technology and enablement service if it is done in connection with the making of a particular non-cash funds transfer and under an arrangement between the provider and someone other than the payer or payee, where there is also no arrangement between the provider and either the payer or payee for the making of non-cash funds transfers. Third-party back-end identity verification services therefore will not be captured as payment technology and enablement services. This service is taken to be provided to the person with whom the provider has an arrangement to verify a person's identity or transmit an instruction, and is taken to be provided each time the provider takes such an action under the arrangement. It is intended to cover pass-through digital wallet services and payment gateways that enable payees to accept payments, among other things. |
Each of these financial services will also be accompanied by a regulation-making power under which conduct can be taken not to be the relevant kind of payment service.
As well, the draft legislation contains consequential changes to the definition of retail and wholesale clients, to accommodate the new financial products and financial services.
New obligations
Cooperation with AFCA and other licensees
AFS licensees who provide payment services or other financial services in relation to payment instruments or stored value facilities, for the purposes of another licensee providing such financial services to retail clients, would be obliged to:
- take reasonable steps to cooperate with the Australian Financial Complaints Authority (AFCA) in resolving any complaint to which the other licensee is a party, including by giving reasonable assistance to the regulator in resolving the complaint, and giving AFCA any documents and information it may reasonably require for the purpose of resolving the complaint; and
- cooperate with the other licensee for the purpose of enabling them to apply their internal dispute resolution procedure to resolve the complaint and cooperate with AFCA in resolving any complaint to which the other licensee is a party.
This obligation is intended to cover circumstances where a payment service provider enters into an arrangement with an intermediary licensee to carry out a service to enable the provision of the financial services to retail clients—non-cooperation by the intermediary licensee could impede the other licensee's or AFCA's ability to resolve complaints made by retail clients.
Information gathering from unlicensed persons
The draft legislation includes provisions under which ASIC could direct an unlicensed provider of payment services or other financial services in relation to payment instruments or stored value facilities to provide a written statement to the regulator, containing information about the financial services they or their representatives provide, and an audit report regarding such information. This would enable ASIC to investigate unlicensed conduct in relation to payment services, payment instruments and stored value facilities.
The draft legislation also contains a regulation-making power under which regulations can be made to compel unlicensed providers of payment services or other financial services in relation to payment instruments or stored value facilities to provide information to ASIC.
Disclosure obligations for tokenised stored value facility providers
A tokenised stored value facility provider would be required to publish on the internet the following information:
| Information | Timing |
|---|---|
| Notice of any material change or significant event that may reasonably be expected to affect the value of the reserve assets it holds to meet obligations under tokenised stored value facilities it has issued, or its ability to meet those obligations. |
Either:
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A statement containing information required by the regulations in relation to:
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Monthly, within seven days after the end of each calendar month. |
Failing to provide the required information within the required timeframe or providing defective information would be offences under the draft legislation, under provisions similar to the existing offences relating to defective disclosure documents, as well as opening the provider to civil liability under s1022B.
Next Steps
Payment service providers should review the proposed changes and their operations to confirm how the new regime may impact their licensing and conduct obligations.
Those who have an interest in any of the proposed measures in the draft legislation must submit responses to Treasury by 6 November 2025.
Treasury has indicated that it expects to consult on Tranche 1b in early 2026, with a view to introducing a single package of Tranche 1 legislation in 2026.
The Government will also consult on Tranche 2 in 2026.
If you would like assistance with submitting a response, or want to discuss the issues raised in this Insight, please contact any of the people below.