Insights / April 5th, 2022

How can I join the e-payments space? (Find out more)

We are frequently approached by start-ups that want their piece of the digital payments space, but a few key regulatory matters are often neglected. This is largely due to the complexity of the regulatory landscape which leads to misinterpretation and difficulty in navigating.

This insights touches on a few of those key regulatory considerations and attempts to simplify the issues, to help shape your thinking if you are considering taking the plunge into e-payments.

Non-Cash Payment Facilities

Depending on the type of service you intend offering you may need to either hold an Australian Financial Services License (AFSL) or be appropriately authorised under one. Under the Corporations Act a facility through which a person can make non-cash payments amounts to a financial product. What does that mean?

Well, a facility through which a non-cash payment can be made effectively refers to the piece of plastic in your wallet that you use to tap an eftpos terminal, whether it’s a debit, credit or stored value card (although each are treated slightly differently under the relevant legal provisions).

When you issue a card to a person for which you owe the obligations in relation to the card (i.e. you are the issuer of the card), or where you direct a person to a third party to do so, the conduct will usually amount to the provision of a financial service. This is because your conduct amounts to what is referred to as ‘dealing’ conduct under the Corporations Act.

Dealing refers to an activity which can include either issuing a financial product or arranging for a person to apply for or acquire a financial product. Bringing this together, when you provide a financial service, the requirement to hold, or to be appropriately authorised under an AFSL applies unless you are eligible to rely upon an exemption.

AML-CTF Considerations

It is critical that once you have understood the financial services regulatory environment that you ensure you understand any applicable obligations under Anti Money Laundering and Counter Terrorism Financing (AML CTF) laws. In short, a key aspect of this is seeking advice on whether your activities will amount to providing a designated service which will cause you to be considered a reporting entity.

The AML CTF Rules vary depending on specific differences in your service offering, which may require you to hold and maintain compliance with an AML CTF Compliance Program. An AML CTF Compliance Program is made up of two parts, referred to as Part A & Part B. You may need to hold a complete program (Part A & B) or just a Part B (customer identification and verification procedures). There are significant penalties for non-compliance so upskilling is a recommended necessity.

Developed Concept & Design

Lastly, it is critical that the concept and design of your idea is well documented with a level of detail that is adequate to enable a third party to understand what your business intends to do and the intended target market, how it will work (from a target market and back-end perspective) and how you will generate a return.

Although it may seem rudimentary, when we are talking about digital payments, it is often invaluable to map out your understanding of the payment flows as they are to occur between parties, the role of each party and the events that need to occur at each step to trigger the flow.

Cowell Clarke is experienced in helping start-ups and established businesses understand and comply with their obligations around digital payments. We also offer a bespoke AFSL compliance solution dedicated to the needs of non-cash payment providers. Please contact us if you’d like to know more.

This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice.  You should not act upon the information contained in this publication without obtaining specific professional legal advice.  No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.

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