13 December, 2018
On 16 November 2018, the Australian Securities & Investments Commission (ASIC) announced that ASIC Corporations (Non-cash Payment Facilities) Instrument 2016/211 (NCP Instrument), which provides relief for a range of “limited use” or "low value" non-cash payment (NCP) facilities, will continue to operate past its original end date of March 2019. ASIC notes that this is intended to allow government policy surrounding the relief to be clarified. Currently, no new end date has been specified (although the NCP Instrument has a statutory sunset date of 1 April 2026).
This "extension" provides some immediate relief for current issuers of such "low value" facilities (which includes: gift vouchers or cards, prepaid mobile accounts, loyalty schemes, road toll devices and travelers' cheques). However, it may also frustrate those looking for certainty in the development of new products and innovative payment systems.
Overview of the NCP Instrument
NCP facilities are facilities through which payments are made other than through the physical delivery of currency (e.g., stored value cards, funds transfers, and direct debit services) and could include those listed above. NCP facilities are "financial products" for the purposes of the Corporations Act 2001 (Cth). Without this relief, issuers (or advisers and arrangers) of such facilities would be subject to the licensing regime and need to comply with a broad range of conduct and prescriptive disclosure requirements.
Through the NCP Instrument, ASIC had previously granted (in some cases conditional) relief for these "low value" facilities from complying with some aspects of these obligations.
The NCP Instrument also exempts licensees that are not NCP providers from holding a NCP authorisation when advising on or arranging for the use of a designated "prepaid" payment service (i.e., eftpos or Visa/MasterCard debit cards) to pay a third party.
What the extension means
Although we welcome the removal of the NCP Instrument's expiry date, we note that the NCP Instrument's "extension" is subject to further review once policy in this area has been clarified by Treasury, ASIC, the Reserve Bank of Australia and the Australian Prudential Regulation Authority.
The lack of long-term clarity in this relief extension (while welcome in the short term) may frustrate some new entrants to the payments space, such as fintechs and other start-ups, who are in the process of determining the viability of their business model. It also comes at a time of increased regulatory oversight under ordinary consumer law in the provision of "gift cards" (and similar) both at a State and Federal level.
The Council of Financial Regulators (made up of the relevant government regulators in this space, together with Treasury) stated in its issues paper, Review of Retail Payments Regulation: Stored Value Facilities (CFR Paper), that the global payments industry is in the midst of a period of "significant innovation" due, in part, to the influence of non-traditional payment service providers (some of whom would rely on the NCP Instrument for relief). A study by the RBA has shown that payments made by "other" methods such as gift cards, prepaid cards, welfare cards, bank cheques, money order, Cabcharge and other online payments methods (other than PayPal) have quadrupled between 2010 and 2016. The study also shows that consumers are increasingly turning to electronic payment methods.
We see continued availability of this or similar relief as an important factor in maintaining competitiveness with other jurisdictions in the Asia Pacific region who have been far more innovative in their approaches to NCP, in particular over recent years. However, we note that it the NCP Instrument relief also comes at a time when other jurisdictions have begun to regulate the sector more closely. For example, Hong Kong began issuing stored value facility licenses last year, and we expect that others in the region may follow suit.
We encourage you to contact us below for any queries related to how relief under the NCP Instrument may apply to your products, including the relevant conditions that may currently apply.
For further information, please contact:
Lewis Apostolou, Partner, Baker & McKenzie
lewis.apostolou@bakermckenzie.com
