Widening the net: consultation on licensing of payment service providers commences (with a stablecoins ‘kicker’)

New financial services (“Payment Services”)

Note: A person that provides one of the new payment services or a financial service relating to the new financial products is only subject to licensing requirements if they are a domestic or foreign company or body corporate, or an unincorporated body capable of suing and being sued or holding property in the name of a secretary or officer.

The ED also introduces a number of new defined terms that are used in the above concepts, including:

1. “transfer”, which adopts the definition used in the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) and includes something that may reasonably be regarded as the economic equivalent of a transfer of funds;
2. “funds”, which includes money, a medium of exchange prescribed by the regulations, as well as a right to redeem those things. The breadth of this definition is very important and ties into stablecoins, as we explain below; and
3. “non-cash funds transfer”, which broadly refers to funds standing to the credit of a facility being transferred to another person or facility pursuant to instructions (but excluding transfers of physical currency and transfers by means of letters of credit, cheques and guarantees given by financial institutions).

What is happening to the exemptions?

Currently there is a wide range of exemptions for non-cash payment facilities. These include exemptions for certain arrangements involving single payees (Single Payee Exemption), loyalty programs, low value facilities and gift cards.

The Draft EM indicates that the Australian Government intends to:

1. retain the exemption for facilities that can only be used to make payments to one person (ie the Single Payee Exemption) (we note that the most recent consultation paper in December 2023 indicated this would be removed);
2. retain the exemption for facilities can only be used to make payments to the issuer and related bodies corporate;
3. remove the exemption for “electronic transaction facilities”, which we assume is intended to refer to regulation 7.1.07G of the Corporations Regulations for operators of payment systems (although it is not clear how this will be modified); and
4. modify the exemption for payments that are debited to a credit facility (although it is not clear how this will be modified).

These will be the subject of consultation in early 2026.

The status of other key exemptions remains unclear, including in relation to issuance of payment instruments or SVFs through intermediaries, as well as low-value facilities and loyalty schemes (although we note ASIC recently consulted on remaking the existing ASIC Corporations (Non-cash Payment Facilities) Instrument 2016/211 (Cth) for a further 5 years).

What is happening with client money?

Different approaches are adopted in industry in relation to whether money paid in connection with a non-cash payment facility is required to be held in compliance with the client money provisions (also referred to as ‘safeguarding’).

The Draft EM indicates that the next tranche of the draft law will resolve this by requiring PSPs to safeguard all money held in, or transferred through, SVFs, payment instruments and payment services.

Consistent with the current client money provisions, the primary method of safeguarding will be to segregate relevant funds in a trust account with an Australian ADI. This significantly restricts the purposes for which PSPs can use or invest those funds.

However, the Government indicates that PSPs may be able to seek approval from ASIC to use other safeguarding methods including a guarantee from an ADI or APRA-regulated insurer.

Stablecoins and “tokenised SVFs”

Certain fiat currency-referenced stablecoins are proposed to be regulated as “tokenised SVFs”.

By way of brief background, the 2023 Payments System Modernisation (Regulation of Payment Service Providers) consultation paper (2023 CP) referred to the need to for different regulatory treatment of tokenised SVFs compared to traditional SVFs. This reflects that the issuer of a token often has no role in facilitating secondary market transactions. Rather, the transactional functions are facilitated by third-party service providers.

At a high level, the ED adopts a ‘dual track’ regulatory model for stablecoins which comprises of two aspects that serve discrete purposes.

• Integrity of the entitlement: The introduction of new licensing framework for tokenised SVFs, to ensure the proper issuance and redemption of entitlements and the capacity of the business to meet its obligations.
• Transactional functions: The regulation of third-party service providers that accept stablecoins.

This approach in regulating the structure of a stablecoin and its circulation in the economy, is broadly consistent with the direction of travel in several other regimes. For example, see our KWM HK Stablecoins Alert that outlines the key aspects of Hong Kong’s new stablecoins regime governing issuance and offers that took effect on 1 August 2025.  However, there are some important distinctions, including how digital tokens connected with tokenised SVFs will be characterised for Australian regulatory purposes.

The key concepts relevant to tokenised SVFs are as follows:

1. SVF, as described above.
2. Tokenised SVF.  This means an SVF in relation to which the following conditions are satisfied:
   1. each right to redeem a particular amount in respect of the amount standing to the credit of the facility is exercisable only by the person who possesses the digital token attached to that right;
   2. the amount that may be redeemed in exercising that right is fixed and denominated in a single currency (whether Australian or foreign currency).
3. Funds, which carries the broad definition described above.  The Draft EM clarifies that digital tokens connected to tokenised SVFs are intended to be ‘funds’, as they represent, or have attached to it a right to claim money from the tokenised SVF provider.  A digital token that does not fall within this definition is not intended to be covered, even if it has value.  The term “digital token” will be defined as part of expected concurrent legislative reforms.  See our KWM DAP/TCP Reforms Alert for a summary of these proposed changes.

Note: The proposed characterisation of such tokens as “funds” is very important given the several contexts in which “funds” is used in the Draft EM.      

The ED also proposes ongoing disclosure obligations for tokenised SVF providers in relation to:

1. material changes or significant events; and
2. monthly disclosure regarding reserve assets and outstanding liabilities, with penalties for non-compliance.

Next steps

Australian payments sector reforms have been eagerly awaited by industry participants across the payments ecosystem. This consultation is an excellent opportunity to provide feedback on some of the most critical foundations of the reforms, even though further details are still needed to assess their full potential impact.

We also suggest reading these proposals carefully together with the concurrent consultation in relation to digital asset platforms and tokenised custody platforms, given the significant overlap in subject matter and the increasing relevance of digital assets to the payments sector. Please refer to our KWM DAP/TCP Reforms Alert for further detail.

Please contact us if we can assist you in any way. Our KWM Payments Team would be delighted to support.