Payments System Board Annual Report 2022

At a Glance

The payments landscape is continuing to evolve

The way Australians make and receive payments is continuing to evolve, driven by innovation and changing end-user expectations.

Over the past year there has been a further shift to electronic payments, including payments made online and using mobile devices, as well as strong growth in new payment types, such as ‘buy now, pay later’ services. Use of Australia’s fast payment system, the New Payments Platform, has continued to grow since it launched a few years ago, enabling more efficient, flexible and data-rich payments. The use of cash for transactions has been declining for many years, a trend that was accelerated by the pandemic, though cash still remains important for some people. The Bank is devoting considerable time to understanding these changes in the payments landscape and the implications for payments policy and regulation.

Policy and regulatory work addressing the strategic priorities

The Bank has been undertaking a range of policy and regulatory work in pursuit of the five strategic priorities determined by the Payments System Board in August 2021.

Support the shift towards digital payments

As the payments landscape continues to evolve, the Bank has an important role to play in ensuring that payment services remain efficient and meet the needs of all users of the payments system. A key focus recently was completing a major review of retail payments regulation, which led to the implementation of new policies to enhance the efficiency and competitiveness of the payments system. The Bank has undertaken a number of initiatives to expand the data it collects and publishes on the retail payments system. There has also been a close focus on the use and development of the New Payments Platform and on initiatives to enhance cross-border payments. While use of cash for retail payments continues to decline, the Bank has been working to ensure that people who want or need to use cash continue to have access to cash services, including undertaking a review of wholesale banknote distribution arrangements. Finally, the Bank has been closely monitoring the industry’s efforts to manage the transition away from cheques and the development of plans to wind down and eventually retire the Direct Entry system.

Research central bank digital currencies and other innovations in payment systems

The emergence of new technologies continues to drive fast-paced innovation in the payments system. Australians are readily embracing new payment trends, particularly those offering value propositions for greater speed and convenience. The Bank has an important role in understanding these new technologies and innovations, as well as any implications for the competition, efficiency and stability of the payments system. A key focus has been on investigating the potential use, benefits and other implications of central bank digital currency. To support the overall health of Australia’s payments system, the Bank has also been devoting significant resources to understanding other innovations and engaging with innovative firms in the retail payments system.

Identify and resolve any competition and efficiency issues associated with new technologies and players in the payments system

The Bank has a role to play in addressing any access, competition or efficiency issues raised by new entrants or the application of new technologies in the payments system. A key focus recently has been supporting the Treasury on implementing a number of reforms to the regulatory framework for payments stemming from the 2021 Treasury Payments System Review. The Bank has also been closely monitoring developments in crypto-asset markets and assessing implications for the payments system. As part of this, the Bank has been working with other regulatory bodies to develop a regulatory framework for payment stablecoins.

Promote the safety and resilience of financial market infrastructures and payment systems

The Bank has a role in overseeing and supervising financial market infrastructure (FMI) and payment systems to promote financial stability. The Bank assesses licensed clearing and settlement (CS) facilities – central counterparties and securities settlement facilities – against the Bank’s Financial Stability Standards. These standards are based on the Principles for Financial Market Infrastructure (PFMI), which are internationally agreed standards for FMIs. The Bank also assesses RITS, which is Australia’s high-value interbank payments system, against the PFMI. This year the Bank made recommendations to strengthen the operational resilience and risk management frameworks of Australian CS facilities, and to strengthen the operational resilience of RITS.

The Bank has an important role in ensuring the payments system is operationally resilient, safe and secure for all. As the use of electronic payments continues to rise, so do concerns regarding the safety and security of the payments system. The Bank has recently implemented a new data initiative to improve the quality and transparency of information about retail payment system reliability. It has also assisted in the application of the Government’s new critical infrastructure legislative reforms to operators of critical Australian retail payments systems. The Bank has been closely monitoring industry efforts to help combat fraud and payment scams.

Work with the government to implement reforms to the regulation of FMIs

The Bank is working with the government on implementing reforms to the regulation of FMIs, including stronger supervisory powers and a crisis management regime for Australian CS facilities. These reforms will help to maintain the stability of the financial system by ensuring that the Bank and ASIC have the powers to respond appropriately and quickly to a crisis involving the potential failure of a CS facility.

Financial market infrastructure have contributed to financial stability

The FMIs supervised by the Bank underpin well-functioning financial markets and a stable financial system. The Bank continuously monitors the financial and operational risk management practices of FMIs and how these practices evolve in response to financial, economic and cyber threat developments.

FMIs are critical to the smooth functioning of the financial system. Over the past year, volatility in commodity and financial markets has increased, which highlights the importance of monitoring FMIs’ financial risk management. The Bank is focussed on how FMIs manage operational risk, in particular the management of system and technology changes. This is especially relevant for the Bank’s oversight of ASX’s replacement of the CHESS clearing and settlement system for cash equities. Regulators in Australia and overseas have also placed greater focus on what FMIs are doing to strengthen their cyber resilience, with geopolitical tensions increasing the risk of cyber threats both in Australia and abroad.