Defined Terms and Document

 

 

Attachment 'D'

The Payment Systems (Regulation) Act 1998 gives the Reserve Bank of Australia extensive powers to gather information from a payment system or from individual participants.

8    Meaning of public interest

In determining, for the purposes of this Act, if particular action is or would be in, or contrary to, the public interest, the Reserve Bank is to have regard to the desirability of payment systems:

(a)     being (in its opinion):

          (i)      financially safe for use by participants; and

          (ii)    efficient; and

          (iii)   competitive; and

(b)     not (in its opinion) materially causing or contributing to increased risk to the financial system.

The Reserve Bank may have regard to other matters that it considers are relevant, but is not required to do so.

Further explained in To Act in the Public Interest

"Part 3—Regulation of payment systems

Division 1—Overview

10 Overview of main regulatory provisions

(1)   Under this Part, the Reserve Bank is given the power to 'designate payment systems' (see Division 2).

(2)   The Reserve Bank has the following powers in relation to a 'designated payment system':

        (a)     it may impose an 'access regime' on the participants in the payment system (see Division 3); and

        (b)     it may make 'standards' to be complied with by participants in the payment system (see Division 4); and

        (c)     it may 'arbitrate disputes' relating to the payment system (see Division 5); and

        (d)     it may 'give directions' to participants in the payment system (see Division 6)."

Payments System Board 

Responsibilities and Powers

The Payments System Board's responsibilities and powers are set out in four separate Acts:

  1. Reserve Bank Act 1959;

  2. Payment Systems (Regulation) Act 1998;

  3. Payment Systems and Netting Act 1998;  

  4. Cheques Act 1986.

The Reserve Bank Act 1959, as amended, gives the Payments System Board responsibility for determining the Reserve Bank's payments system policy. It must exercise this responsibility in a way that will best contribute to:

  • controlling risk in the financial system;

  • promoting the efficiency of the payments system; and
  • promoting competition in the market for payment services, consistent with the overall stability of the financial system.

Increasingly, central banks are being given explicit authority for payments system safety and stability, but the Board's legislative responsibility and powers to promote efficiency and competition in the payments system are unique. This responsibility has broadened the Bank's traditional focus on the high-value wholesale payment systems which underpin stability, to encompass the retail and commercial systems where large transaction volumes provide scope for efficiency gains.

The Bank's wide-ranging powers in the payments system are set out in the Payment Systems (Regulation) Act 1998. It may:

  • 'designate' a particular payment system as being subject to its regulation. Designation has no other effect; it is simply the first of a number of steps the Bank must take to exercise its powers;
  • determine rules for participation in that system, including rules on access for new participants. Since access is inextricably linked to efficiency the Bank works closely with the Australian Competition and Consumer Commission (ACCC) (see below);
  • set standards for safety and efficiency for that system. These may deal with issues such as technical requirements, procedures, performance benchmarks and pricing;
  • direct participants in a designated payment system to comply with a standard or access regime; and
  • arbitrate on disputes in that system over matters relating to access, financial safety, competitiveness and systemic risk, if the parties concerned wish.

Part 5—Miscellaneous, Section 26 'Persons to give Reserve Bank information' of the Payment Systems (Regulation) Act 1998 also gives the Reserve Bank of Australia (RBA) extensive powers to gather information from a payment system or from individual participants.

The Payment Systems and Netting Act 1998 gives the Board a role in removing two important legal uncertainties in the Australian payments system:

  • under the so-called 'zero hour' rule, a court may date the bankruptcy of an institution from the midnight before the bankruptcy order is made. Such a rule would threaten the irrevocable nature of payments in the RTGS system; the strength of this system is that payments cannot be unwound if a participant were to fail after having made payments earlier in the day. Similar concerns arise in the case of 'delivery-versus-payment' arrangements in securities settlement systems;
  • some payment systems in Australia settle on a multilateral net basis. Rather than routinely paying and receiving gross obligations, members of the system pay and receive the relatively small net amounts owed 'to the system'. This is convenient and efficient, but carries the risk that in the event of the bankruptcy of one of the parties, its administrator might 'cherry pick' and insist that solvent institutions meet their gross obligations to pay it while refusing to honour its obligation to do likewise. Solvent parties would then receive little in return for their payments to the failed institution, putting them under liquidity pressures and threatening their own solvency.

The Payment Systems and Netting Act 1998 provides the basis for removing these uncertainties. The Act exempts transactions in approved RTGS systems from a possible 'zero hour' ruling and ensures that approved multilateral netting arrangements cannot be set aside. The Act does not specify which particular systems are exempt; instead, as a means of providing flexibility, the Reserve Bank has been given the power to approve RTGS systems and multilateral netting arrangements which apply for such approval.

The Cheques Act 1986 was amended in 1998 to provide that cheques that are settled in a recognised settlement system will be deemed dishonoured if the financial institution on which they are drawn is unable to provide the funds. This gives an important protection to institutions at which such cheques are deposited, because it allows them to reverse any provisional credits made on the basis of these cheques. The Reserve Bank has been given responsibility under the Cheques Act 1986 to determine that a system for settlement of cheques is a recognised settlement system.

The Payments System Board acquired additional responsibilities for the regulation of securities clearing and settlement systems with the passage of the Financial Services Reform Act in August 2001.

Relationship with the Reserve Bank Board and the Government

The Reserve Bank Act 1959 provides a clear delineation between the Payments System Board, which has responsibility for the Bank's payments system policy, and the Reserve Bank Board, which has responsibility for the Bank's monetary and banking policies and all other policies except for payments system policy. Instances of conflict over policies should therefore be rare. However, if a conflict were to arise, the view of the Reserve Bank Board would prevail to the extent that there was any inconsistency in policy. If there are disagreements between the Boards on questions of jurisdiction or inconsistency of policy, they are to be resolved by the Governor, who chairs both Boards.

The Payments System Board is required to inform the Government of its policies. In the event of a difference of opinion between the Government and the Board, the provisions of section 11 of the Reserve Bank Act 1959 provide a mechanism for dispute resolution.

Relationship with the Australian Competition and Consumer Commission (ACCC)

The ACCC has a longstanding role in the Australian payments system. Payment systems often rely on co-operative arrangements between participants that are otherwise competitors; such arrangements therefore have the potential to contravene the provisions of the Competition and Consumer Act 2010 (formerly the Trade Practices Act 1974). However, if the ACCC judges the arrangements as being, on balance, in the public interest, it may authorise them. Over recent years the ACCC has authorised a number of such arrangements, particularly those operated by the Australian Payments Clearing Association (APCA) for cheque-clearing, direct entry, debit cards and high-value transactions. With the enactment of the Payment Systems (Regulation) Act 1998, there is an onus on the Reserve Bank and the ACCC to take a consistent approach to policies on access and competition in the payments system. This has been facilitated through an ACCC and RBA Memorandum of Understanding (MOU) signed in September 1998. The MOU makes it clear that:

  • the ACCC is responsible for ensuring that payments system arrangements comply with the competition and access provisions of the Competition and Consumer Act 2010, in the absence of any specific Reserve Bank initiatives. Under its adjudication role, the ACCC may grant immunity from court action for certain anti-competitive practices, if it is satisfied that such practices are in the public interest. It may also accept undertakings in respect of third-party access to essential facilities; and

  • if the Reserve Bank, after public consultation, uses its powers to impose an access regime and/or set standards for a particular payment system, participants in that system will not be at risk under the Competition and Consumer Act 2010 by complying with the Bank's requirements.

The effect is that the ACCC retains responsibility for competition and access in a payment system, unless the Bank designates that system and follows up by imposing an access regime and/or setting standards for it. If the Bank does so, its requirements are paramount. Designation does not, by itself, remove a system from the ACCC's coverage.

In terms of the MOU, Reserve Bank and ACCC staff are in close contact on relevant matters. The Governor and the Chairman of the ACCC also meet at least once a year to discuss issues of mutual interest in the payments system.

I also note from A revised Interchange Standard for the EFTPOS System - November 2009 that:

"The Payments System Board’s responsibilities stem from the Financial System Inquiry (1997), Final Report, March. The Inquiry found that, while earlier deregulation had improved competition and efficiency in Australia’s payments system, further gains were possible. To that end, it recommended the establishment of the Payments System Board at the Reserve Bank with the responsibility and powers to promote greater competition, efficiency and stability in the payments system. The Government accepted those recommendations and established the Payments System Board in 1998. The Board’s responsibilities are set out in the Reserve Bank Act 1959. The Act requires the Board to determine the Bank’s payments system policy so as to best contribute to: controlling risk in the financial system; promoting the efficiency of the payments system; and promoting competition in the market for payment services, consistent with the overall stability of the financial system.

At the time the Board was established, the Government also provided the Reserve Bank with specific powers to regulate payment systems in order to implement the Board’s policies. The most relevant powers in the context of the reforms to the debit card systems are those set out in the Payment Systems (Regulation) Act 1998. Under this Act, the Bank has the power to designate payment systems and to set standards and access regimes in designated systems. The Act also sets out the matters that the Bank must take into account when using these powers, including the desirability of payment systems: being financially safe for use by participants, efficient and competitive; and not materially causing or contributing to increased risk to the financial system."