Australian banks have been accused of wilfully de-banking crypto exchanges and businesses over the past few years, but could a new Australian Government proposal change that?

De-banking is where a where a bank declines to offer or withdraws banking services to a customer. In this case, crypto exchanges losing banking payment rails for unclear reasons.

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Payments Consultation Paper

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In December 2023, the Australian Government released the Payments System Modernisation: Regulation of Payment Service Providers Consultation paper (“Payments Consultation Paper”), following a previous consultation paper in June 2023.

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The Payments Consultation Paper is currently seeking feedback (until 2 February 2024) on a proposed licensing framework for payment service providers (“PSPs”). The Payments Consultation Paper proposes updating a list of payment functions to be licensed and utilising the existing Australian financial services framework to regulate PSPs.

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The updated list of payment functions to be licensed, seeks to leverage the existing Australian Financial Services Licence (“AFSL”)  framework to regulate PSPs.

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The complexity is how extending the definition of PSPs and ‘financial products’ may intersect with the existing AFSL system, required to operate a financial services business. Will the requirements be too onerous for financial services business owners? Will they fit appropriately for crypto businesses?

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Our key thoughts

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1. Importantly, this new system may help the issue of de-banking. A key proposal is further obligations fora wider list of PSPs under the AFSL framework and this may protect exchanges from problematic de-banking issues by providing greater transactional clarity;

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2. Whilst, pursuant to this Payments Consultation Paper, ‘payment facilitation services’ and ‘cross-border transfer services’ will require an AFSL, it is unclear whether this will extend to the transfer of digital assets or just to fiat currency. It likely only applies to fiat currency, as digital assets are proposed to be regulated under the Regulating Digital Asset Platform consultation paper;

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3. There are currently no ‘payment facilitation services’ and ‘cross-border transfer services’ authorisations under the AFSL. Any future regulatory regime will need to be designed well, so it is not an onerous commercial burden on PSPs; and

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4. It is noteworthy that there is a proposal for an Industry Standard Setting Framework and this may offer the crypto industry a seat at the regulation design table.

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Concluding remarks

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In short, new terms in the Payments Consultation Paper such as ‘cross-border transfer service’ would be considered a ‘financial product’ and subject to an AFSL.

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However, the Payments Consultation Paper is, at this stage, only a consultation paper. No draft Bills (legislation) have been proposed and it is unclear whether any draft Bills will be developed.

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Likelihood of becoming law

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The Government intends to introduce legislation for the proposed payments licensing regime in 2024.

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If the Parliament were to pass a Bill, there will be a considerable transition period to allow for compliance. Having an AFSL would likely enable for a variation to an application as opposed to having to submit a new application.

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Consultation papers very often get shelved (for example, the Crypto Token Mapping Consultation). As there is a Federal election next year which could affect (and very likely delay) any development of legislation, stay tuned for a long consultation period.

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Gosai Law welcomes our clients and friends to contact us regarding any thoughts and issues you may wish to outline in a submission. Note: there are consultation questions that are outlined throughout the document.