The government is consulting on a licensing framework for payment service providers (PSPs). The proposed reforms aim to ensure the regulation of payment services is "fit-for-purpose and provides consistent regulation based on the activity a payment service provider performs."

This paper is the second on the proposed framework, and follows the first consultation paper released in June 2023 that sought feedback on the proposed list of payment functions to be licensed. The proposed regulatory framework outlined in this paper includes an updated list of payment functions and leverages the Australian Financial Services framework to regulate PSPs.

In addition, the framework proposes:

• a set of regulatory requirements to facilitate greater access to payment systems
• graduated regulatory requirements for stored-value facilities including payment stablecoins
• a framework for industry standard-setting 
• a new rule-making power to enable the introduction of a mandatory revised ePayments code to provide enhanced consumer protections.

Deadline for comments is 2 February 2024.

The proposed framework would require digital asset platforms that hold over a certain threshold of Australians assets ($1,500 for an individual; $5 million in aggregate) to obtain an Australian Financial Services Licence.

Digital asset platforms would need to meet all general licence obligations, consistent with other licence holders.

According to the factsheet published together with the proposal paper, the general obligations are drawn from the Australian financial services law and include:

• providing the financial service efficiently, honestly, and fairly
• managing conflicts of interest
• having a dispute resolution system
• meeting solvency and cash reserve requirements
• keeping and submitting financial records
• producing product disclosure statements
• monitoring for and disrupting market misconduct.

All digital asset platforms will also need to meet specific obligations that take into account the nature of the platforms, of tokens, and their risks. The specific obligations, unique to the digital assets industry, will include:

• standard form platform contracts
• minimum standards for holding tokens
• standards for custody software
• standards when transacting in tokens.

The proposal would also apply additional obligations to four specific activities involving non-financial products offered by digital asset platforms:

• Trading – the exchange of digital asset platform entitlements between account holders.
• Staking – the participation in validating transactions on a public network.
• Tokenisation – the creation and exchange of entitlements backed by tangible and intangible assets.
• Fundraising – the sale of entitlements to fund the development of products and services.

Obligations are "targeted to address some of the risks that arise from digital asset platform business models and the nature of the tokens they provide access to." 

Deadline for comments is 1 December 2023.

The Committee welcomed the opportunity to "consider stakeholders’ views on the regulation of digital assets in Australia" but found that the Bill was "at odds with the measured and industry accepted approach" that the Australian Government was currently pursuing.

The report calls for issuers to:  

• address their over-reliance on client questionnaires as a primary distribution filter; 
• review their mass marketing of OTC derivatives; and  
• make greater use of available data to assist the design of derivative products, target market determinations (TMDs) and distribution arrangements. 

The consultation paper, which explores where existing regulation applies and helps set the path for future reforms, describes key concepts needed to build a "shared understanding of the crypto ecosystem". The aim is to "assist industry, regulators, and consumers in navigating the crypto ecosystem and its interaction with financial services laws."

The consultation describes the concept of the functional perimeter – "the broad, functional definition of ‘financial product’ in the Corporations Act", which is intended to be "technology neutral, flexible, and innovation friendly." It also proposes a token mapping framework to assist in conceptualising how crypto products might fit within existing regulatory frameworks.

The Government will propose a framework for custody and licensing for public comment in mid-2023. Feedback to the token mapping paper will be used to shape the development of these regimes.

Deadline for responses is 3 March 2023.

As a first step in a reform agenda, the Treasury will prioritise 'token mapping' work in 2022, which will help to identify how cryptoassets and related services should be regulated.

The aim of the reforms will be to "identify notable gaps in the regulatory framework, progress work on a licensing framework, review innovative organisational structures, look at custody obligations for third-party custodians of cryptoassets and provide additional consumer safeguards."