Payments System Board Update: February 2024 Meeting

At its meeting today, the Payments System Board discussed a number of issues, including:

• Annual review of payment systems. Members reviewed developments in the payments landscape and affirmed that the Reserve Bank Information and Transfer System (RITS) is currently the only domestic systemically important payment system. The review also considered prominent payment systems, which are systems where an outage could cause significant economic disruption and damage confidence in the financial system. Members affirmed that the New Payments Platform, Visa, Mastercard and eftpos (all declared as critical infrastructure by the Government) continue to be prominent payment systems. In addition, members determined that the Bulk Electronic Clearing System (BECS) is a prominent payment system. BECS is Australia’s primary system for account-to-account payments, facilitating most salary, welfare, and pension payments, and a significant disruption could cause serious economic harm to end users. Following the announcement that industry has set a target date of June 2030 for the decommissioning of BECS, members decided that the Bank will be engaging with industry to understand how the significant changes required to facilitate decommissioning and any associated risks are being managed.
• Advanced Encryption Standards (AES). Members agreed to express their strong support for industry efforts to ensure encryption standards continue to meet the high safety standards for card payments expected by the Australian public. Consistent with the Government’s Strategic Plan for the Payments System, members supported the proposal to commence migration in 2025 and encouraged industry to progress the migration with sufficient urgency to enable the transition to AES to be completed within industry’s estimated timeframe of five to seven years.
• Financial market infrastructure (FMI) regulatory reforms. Members welcomed progress on legislative changes to modernise the regulatory framework for FMIs. The reforms will support the maintenance of financial stability in Australia, including by strengthening and streamlining the powers for licensing and supervision of FMIs and establishing a crisis management framework for clearing and settlement facilities. The updated framework will enhance regulators’ ability to monitor, manage and respond to threats to system stability in a more effective way.
• Payments regulatory reforms. Members welcomed progress on the Government’s changes to the Payment Systems (Regulation) Act 1998 (PSRA) and the introduction of a new licensing framework for payment service providers. These reforms will modernise the regulatory architecture for Australia’s payments system and help address policy issues posed by new payment technologies and market entrants. The Board highlighted the importance of the common access requirements in promoting competition in the payments system.
• Mobile wallets. Members discussed competition, efficiency and security issues associated with mobile wallet services. These included access to ‘near-field communication’ technology, the transparency of fees charged to issuers, and issuers’ ability to pass fees on to customers. The Board will consider whether formal regulatory intervention is required to address these issues as part of a broader review of the Bank’s retail payments regulation, which is expected to start once the PSRA reforms are implemented.
• International and domestic work on central bank digital currency (CBDC). Members discussed the ongoing program of international and domestic research on CBDCs. Following last year’s pilot project, the Bank’s next major project will explore how different forms of digital money (including wholesale CBDC and tokenised bank deposits), alongside enhancements to related infrastructure, could support the development of tokenised asset markets. The project will examine different settlement models for tokenised assets and is likely to again involve external collaboration. Members also discussed progress on a paper, to be jointly published with Treasury around mid-year, that will provide a stocktake and roadmap on domestic CBDC research priorities. Members were supportive of the research program aiming to take into account a wide range of views and perspectives on the future of money.