Payments System Board
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 (Chair 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 Chair 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:
Chair: Philip Lowe
Governor since 18 September 2016
Present term ends 17 September 2023
Deputy Chair: Michele Bullock
Assistant Governor (Financial System), Reserve Bank of Australia
Deputy Chair since 29 October 2016
Chairman – Australian Prudential
Member since 9 July 2014
Member – Basel Committee on Banking Supervision
Member – BIS Group of Governors and Heads of Supervision
Member – Council of Financial Regulators
Member – Trans-Tasman Council on Banking Supervision
Member since 15 July 2013
Present term ends 14 July 2018
Senior Partner – Gilbert + Tobin
Director – Sydney Children's Hospital Foundation
Member since 15 July 2013
Present term ends 14 July 2018
Chair – Investment Committee, QIC Global Infrastructure Fund
Advisory Board Member – Six Park Asset Management
Director – AIA Australia Limited
Director – Qantas Superannuation Limited
Member – International Advisory Council of the China Investment Corporation
Member – Southern Territory Salvation Army Investment Committee
Member since 15 December 2016
Present term ends 14 December 2021
Professor of Finance – Monash University
Chair – Australian Securities and Investments Commission Digital Finance Advisory Committee
Catherine Walter AM
Member since 3 September 2007
Present term ends 2 September 2017
Chair – Melbourne Genomics Health Alliance
Deputy Chair – Victorian Funds Management Corporation
Director – Australian Foundation Investment Company
Director – VicForests
Member – Melbourne Law School Foundation
Trustee – Helen Macpherson Smith Trust
Member since 15 November 2010
Present term ends 14 November 2020
Chairman – Foreign Investment Review Board
Chancellor – University of Technology, Sydney
Director – Bell Financial Group Ltd
The Payments System Board meets once per quarter, usually in Sydney.
Five members form a quorum for a meeting of the Payments System Board, which must be chaired by the Governor or, in his absence, the Deputy Chair, who is a representative of the Reserve Bank. The Act provides for decisions to be reached by a majority of the votes of the members present and voting, with the Chair having a casting vote, if necessary, in addition to a deliberative vote. Meetings are held in the Boardroom of the Reserve Bank's Head Office in Sydney. They commence at 9.00 am and generally run for around three and half hours, and conclude with a light lunch to which a guest is usually invited.
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 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.
Relationship with the Australian Payments Council
The Australian Payments Council brings together senior payments executives to promote a strategic agenda for the Australian payments system through industry collaboration. The Council was formed in 2014 in response to the conclusions of the Board’s Strategic Review of Innovation in the Payments System. The Board indicated at the time of the Strategic Review that it would be more proactive in setting strategic objectives for the payments system. It noted that, as part of this approach, it would seek to engage more directly with the industry on these and other payments system issues and would work with the industry to establish a suitable industry body to enable this. A Memorandum of Understanding formalising arrangements for engagement between the Board and the Council was established in August 2015.
Regulator Performance Framework
Commonwealth regulators adhere to the Government's Regulator Performance Framework. The Framework aims to encourage regulators to undertake their functions with the minimum impact necessary to achieve regulatory objectives. It is focused on the administration, monitoring and enforcement of regulation, rather than the setting of policy.
The Framework requires regulators to measure and report on their performance against six key indicators specified in the Framework. The Bank, in consultation with stakeholders, has developed two sets of metrics to allow assessment against the indicators – one focusing on its regulation of clearing and settlement facilities under the Corporations Act 2001; the other on its regulation of retail payment systems designated under the Payment Systems (Regulation) Act 1998. The first assessment under the Framework covers the 2015-16 financial year.
Further information on the Regulator Performance Framework can be found on the www.cuttingredtape.gov.au website.