Government Outlines Plan for Reforming Australia’s Financial System in 2023

Australian Treasurer Jim Chalmers speaks at Parliament House in Canberra, Australia, on Oct. 25, 2022. Martin Ollman/Getty Images

The Australian government has released its 2023 blueprint for “modernising” the country’s financial system as it seeks to adapt to the rapid changes in the market and provide a more level playing field for businesses and consumers.

The first priority mentioned in the blueprint is to update and improve Australia’s payments system via introducing a “strategic plan” in the first quarter of 2023, which sets out the government’s policy objectives for the system.

Additionally, the government will amend the payment system laws to provide the Reserve Bank of Australia (RBA) with the necessary powers to regulate new and emerging payment systems, including digital wallet services.

It will also consider establishing a regulatory framework for the Buy Now Pay Later (BNPL) sector and a new licensing regime for payment service providers to eradicate the ambiguities within the current regulations and remove some of the barriers new market entrants face.

At the same time, there will be a consultation on granting the finance minister a new power to impose additional oversight from regulators on high-risk payment services, as well as the possibility of creating a new digital currency governed by the central bank.

Enhancing Financial Market Infrastructure

Another important aspect of the government’s 2023 plan is the reform of Australia’s financial market infrastructure.

In its recent recommendations to the government, the Council of Financial Regulators pointed out that the current regulatory framework lacked a crisis regime to enable the RBA to intervene and ensure that clearing and settlement services could continue to work if a crisis occurred.

To deal with this issue, the government stated it would provide the RBA with new abilities to handle emergency situations, as well as improve financial market regulators’ licensing, supervisory, and enforcement powers to reduce the likelihood of a crisis.

Pedestrians are reflected in the wall of the Reserve Bank of Australia in Sydney, Australia, on April 2, 2019. Saeed Khan/AFP via Getty Images

Furthermore, the government said it would support competition in the clearing and settlement services by empowering regulators to make it easier for new players to enter the market and prevent monopolies.

Regarding the cryptocurrency sector, the government is currently working on a “token mapping” project announced in August, which would provide the basis for regulating digital assets.

The government said it would release a consultation paper in early 2023 to inform the public what type of digital assets to be subject to financial services laws and outline the custody and licensing framework for crypto firms to protect consumers.

It will also seek consultation on the framework before introducing new legislation.

Authorities Response

As the Australian government released its blueprint for reforming the financial system, Treasurer Jim Chalmers said current regulations fell behind the rapid changes in the sector.

“Our plan is about opening up space for further innovation while making sure we have the right regulatory approach in place to keep consumers, businesses and the system safe,” he said in comments obtained by AAP.

Meanwhile, RBA governor Philip Lowe said the central bank welcomed the release of the consultation paper on the payments system reform, saying it would provide guidance for the industry and regulators.

He also supported the idea of introducing a licensing regime and amending the payment system laws to allow the central bank to regulate new technologies.

“A lot has changed in the payments system since the PSRA (Payment Systems Regulation Act 1998) was introduced over 20 years ago,” Lowe said at the AusPayNet annual summit.

“The payments ecosystem is now much more complex, there are many new business models, and new technologies are continuing to emerge.”

Speaking about the crypto industry, the governor said that developing a regulatory environment for payment stablecoins, a form of a digital Australian dollar issued by the private sector, was on the RBA’s agenda.

“We can envisage a possible future in which stablecoins are used for payments, as long as they are well-designed and well-regulated,” he said.