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PAYMENTS SYSTEM BOARD
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Responsibilities and Powers
The Payments System Board's responsibilities and powers are set out in four separate Acts. These are: Reserve Bank Act 1959; Payment Systems (Regulation) Act 1998; Payment Systems and Netting Act 1998; and 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.
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.
Members of the Payments System Board
The membership of the Payments System Board is specified in section 25A of the Reserve Bank Act 1959:
- the Governor of the RBA (Chairman of the Payments System Board);
- one representative of the RBA (who is appointed by the Governor and who must be either a member of the Reserve Bank Board or a member of the RBA service; Deputy Chairman of the Payments System Board);
- one representative of the Australian Prudential Regulation Authority – APRA (who is appointed by APRA and who must be either an APRA member or an APRA staff member); and
- up to five other members (who are appointed by the Treasurer for a term of up to five years).
The current members of the Payments System Board are:
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John Laker AO Chairman Australian Prudential Regulation Authority Member since 24 July 1998 |
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Joe Gersh AM Member since 15 July 1998 Present term ends 14 July 2013 Executive Chairman – Gersh Investment Partners Ltd Chairman – Australian Reinsurance Pool Corporation |
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The Payments System Board meets once per quarter. One meeting per year is usually held in Melbourne; the remainder are held in Sydney.
Five members form a quorum of the Payments System Board.
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 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 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 Trade Practices Act 1974, 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 Trade Practices Act 1974 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.
