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Stored-Value Facilities: Understanding the CFR Recommendations

The Council of Financial Regulators (CFR) has released a report detailing the results of a review of the regulation of stored-value facilities (SVF), detailing 11 recommendations to improve the regulatory framework.

The CFR report considered recommendations previously made by the 2014 Financial Services Inquiry (FSI) and the 2018 Productivity Commission (PC) Report on competition in the financial services industry.

    The CFR report defined stored value facilities defined as “payment services that enable customers to store funds in a facility for the purpose of making future payments,” not to be confused with ‘purchased payment facilities’ (PPF).

    The report considered recommendations previously made by the 2014 Financial Services Inquiry (FSI) and the 2018 Productivity Commission (PC) Report on competition in the financial services industry. Issues identified through stakeholder consultation were also considered.

    The CFR report noted that Australia’s current SVF regulatory framework is spread across three of the regulators:

    • ASIC’s responsibilities in relation to payment products form part of its broader responsibilities for administering the Australian financial services (AFS) licensing framework, as well as the consumer protections from the Australian Consumer Law.
    • APRA is responsible for supervising providers that have payment obligations over $10 million that are payable on demand, redeemable in Australian currency and have more than 50 users. These providers are treated as a special class of authorised deposit-taking institution (ADI).
    • The RBA has regulatory responsibility for all other (non-ADI) PPF providers – i.e. those that are not widely available or redeemable on demand in Australian currency.

    The CFR’s recommendations are aimed at simplifying the regulatory framework, encouraging innovation and strengthening consumer protections. Some of the key recommendations from the CFR include:

    1. Regulatory responsibility for SVFs should be confined to APRA and ASIC only (removing the RBA), consistent with their respective mandates for prudential supervision and consumer protection.
      This included that APRA should be responsible for large SVFs that enable consumers to hold large amounts for long periods and to withdraw their funds on demand in AUD, with APRA’s supervisory role capable of extension to certain facilities on public interest grounds.
    2. SVFs that do not meet the criteria for APRA supervision should be regulated by ASIC, required to hold an AFS licence, and meet additional consumer protection requirements.
    3. The regulatory burden should align with the risk to consumers and thus low risk products, such as small or limited-purpose facilities, should continue to be largely exempt from most requirements.
    4. The e-Payments code should be mandatory.
    5. The CFR report identified a perception that client money protections which prevent client funds being co-mingled with the provider’s funds do not apply to SVFs. In response, the CFR recommended that AFS licensees that are subject to the amended client money protections should be required to report to ASIC on the amount of stored value that is held and transaction flows.

    If you have any questions about how to fulfill your legal obligations in providing a stored-value facility, please contact a member of our Financial Services Team.

    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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