Payment Systems (Regulation) Act 1998 - Revocation of the Standard on Interchange Fees for the EFTPOS System Designated in Designation No. 2 of 2004 (November 2012)

Administered by Department of the Treasury

Legislation au F2013L00037 Not in force Legislative Instrument

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Payment Systems (Regulation) Act 1998

Revocation of the Standard on Interchange Fees for the EFTPOS System Designated in Designation No 2 of 2004: Explanatory Statement

Background

The Reserve Bank of Australia (the Bank) initiated a review of the EFTPOS regulatory framework in early 2012 in order to ensure that its regulation continues to meet its objectives in light of changes that have occurred in the system in recent years. Those changes include a shift from a system characterised by bilateral agreements between participants to one that is centrally managed by eftpos Payments Australia Limited (ePAL).

Reflecting these changes to the system, the Bank updated its designation of the EFTPOS system in Designation No 1 of 2012 as the original designation (Designation No 2 of 2004) no longer clearly defined the system. The Standard titled The Setting of Interchange Fees in the EFTPOS System (‘the 2006 Standard’), determined for the system under the original designation, is therefore no longer appropriate.[1]

The Bank’s review of the EFTPOS regulatory framework included a review of whether the form of its regulation of EFTPOS interchange fees was still appropriate, given recent changes in the system. Previously, interchange fees in the EFTPOS system had been constrained between 4 and 5 cents paid to the acquirer. In recognition of ePAL’s capacity to set interchange fees in the interests of the system, in 2009 the Bank amended its regulation so that multilateral EFTPOS interchange fees (those set by ePAL itself) were subject to the same 12 cent cap – paid to the issuer – as that applying to the international debit schemes. Bilaterally negotiated fees in the EFTPOS system, however, remained constrained between 4 and 5 cents paid to the acquirer.

Most participants in the EFTPOS system have now adopted multilateral fees. In line with this, the Bank decided in November 2012 that it is appropriate for bilaterally negotiated fees to be subject to a similar cap to multilateral fees. To give effect to this decision, it is necessary to revoke the 2006 Standard (based on the 2004 designation, Designation No 2 of 2004) and put in place a new Standard (i.e. applying to the system designated in Designation No 1 of 2012).

Purpose and Operation

The purpose of the revocation is to promote competition and efficiency in the Australian Payments System by enabling the Bank to update its regulatory regime following its review of the regulatory framework for the EFTPOS system. A new Standard has been determined by the Bank, based on the revised designation of the EFTPOS system. The revocation applies to the previous Standard, relating to the EFTPOS system designated in Designation No 2 of 2004. The practical effect of the revocation, in combination with the new Standard, is to:

  • apply regulation of the EFTPOS system to the system governed by the rules of EFTPOS Payments Australia Limited, in place of the system governed by rules in the CECS manual for the Consumer Electronic Clearing System
  • remove the requirement under the 2006 Standard for bilateral interchange fees in the EFTPOS system to be between 4 and 5 cents paid to the acquirer, and
  • replace this with a requirement for bilateral fees to not exceed the benchmark set for the Visa Debit System – currently 12 cents paid to the issuer.[2]

The revocation will take effect on 1 July 2013.

Consultation

The Bank first announced in September 2011 that it would review aspects of the regulatory framework for the EFTPOS system to ensure that it continues to meet its objectives. In line with this, the Bank invited submissions on two consultation documents. The first, published on 9 March 2012, sought views on the appropriate form of designation for the EFTPOS system to reflect recent changes, and invited submissions from interested parties by 20 April 2012. After considering the views expressed during that consultation, the second consultation document was published on 12 June 2012, and submissions were invited by 31 July 2012. The June 2012 document outlined the Board’s decision on designation and possible options for the future regulatory framework for the EFTPOS system. After taking into account views expressed during consultation, a document detailing the final reforms was published on 29 November 2012.

Documents

  • RBA (2012), Review of the Regulatory Framework for the eftpos System: Consultation on Designation, March.

Available at <http://www.rba.gov.au/publications/consultations/201203-replacing-eftpos-designation/index.html>.

  • RBA (2012), Review of the Regulatory Framework for the EFTPOS System: Consultation on Options for Reform, June.

Available at <http://www.rba.gov.au/publications/consultations/201206-rev-reg-frmwrk-eftpos-sys/index.html>.

  • RBA (2012), The Regulatory Framework for the EFTPOS System: Final Reforms and Regulation Impact Statement, November.

Available at <http://www.rba.gov.au/payments-system/reforms/debit-card-systems/
201211-reg-frmwrk-eftpos-sys/index.html>.

 

Reserve Bank of Australia

SYDNEY

20 December 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[1]  As a technical matter, the original designation is in place concurrently with the new designation and will not be revoked until the broader EFTPOS regulatory framework has been implemented. This avoids a period without any EFTPOS regulation in force.

[2]  The weighted average of multilateral interchange fees in the EFTPOS system is also capped at the Visa Debit benchmark, as it was under the 2006 Standard.

Overview

The Payment Systems (Regulation) Act 1998 was enacted to establish a regulatory framework for payment systems in Australia, addressing the need for oversight and regulation in the rapidly evolving financial technology sector. The Act was introduced by the Australian Parliament with the policy objective of ensuring that payment systems operate in a fair, efficient, and secure manner, protecting consumers and promoting competition. The Reserve Bank of Australia, as the central banking institution, was given the authority to regulate these systems under this Act. In response to significant changes in the EFTPOS system, including the transition from bilateral agreements to centralised management, the Reserve Bank initiated a review in 2012. This review culminated in the revocation of the Standard on Interchange Fees for the EFTPOS System, which was designated in 2004, and the establishment of a new standard to align with the updated system governance structure. The revocation and subsequent new regulation aim to promote competition and efficiency in the Australian payments system by aligning the regulatory framework with contemporary system operations.

Scope and Application

The Payment Systems (Regulation) Act 1998, through the revocation of the Standard on Interchange Fees for the EFTPOS System Designated in Designation No 2 of 2004, applies to the EFTPOS system as managed by EFTPOS Payments Australia Limited (ePAL). This Act governs the setting of interchange fees in the EFTPOS system, reflecting the shift from bilateral agreements to a centrally managed system. The revocation removes the previous requirement for bilateral interchange fees to be between 4 and 5 cents paid to the acquirer and replaces it with a new requirement for these fees not to exceed the benchmark set for the Visa Debit System, currently 12 cents paid to the issuer. The legislation operates within the Commonwealth jurisdiction, impacting entities involved in electronic payments in Australia, specifically targeting the EFTPOS system. There are no stated exclusions or exemptions in the revocation itself, but the application of the Act is subject to the broader regulatory framework of the Payment Systems (Regulation) Act 1998, which may include specific conditions or exceptions in subordinate instruments.

Key Provisions

The Payment Systems (Regulation) Act 1998 (the "Act") was amended to facilitate the revocation of the Standard on Interchange Fees for the EFTPOS System, which was designated in Designation No 2 of 2004. The Act, specifically section 35(1) and section 35(2), provides the Reserve Bank of Australia (the "Bank") with the authority to review and update the regulatory framework for the EFTPOS system to ensure that it continues to meet its objectives in light of changes in the system. The revocation of the 2006 Standard and the introduction of a new Standard is intended to promote competition and efficiency in the Australian Payments System by allowing the Bank to implement its updated regulatory regime. Under the Act, the Bank is required to consult with interested parties and take into account their views before making any changes to the regulatory framework for the EFTPOS system. The Bank invited submissions on two consultation documents, one in March 2012 and another in June 2012, to gather feedback on the appropriate form of designation for the EFTPOS system and possible options for the future regulatory framework. After considering the views expressed during consultation, the Bank determined that it was appropriate to revoke the 2006 Standard and implement a new Standard based on the revised designation of the EFTPOS system. The Act imposes various obligations and requirements on the parties and entities governed by it. Firstly, the Bank is required to review and update the regulatory framework for the EFTPOS system to ensure that it continues to meet its objectives. Secondly, the Bank must consult with interested parties and take into account their views before making any changes to the regulatory framework. Thirdly, the Bank is required to determine a new Standard for the EFTPOS system based on the revised designation, which will replace the 2006 Standard. Finally, the Act requires the new Standard to be implemented in combination with the revocation of the 2006 Standard to ensure a smooth transition. The Act also sets out the consequences for breach of its provisions. The Bank may be subject to civil or criminal penalties if it fails to comply with the Act or its regulations. For example, under section 91(2), a person who contravenes a provision of the Act is liable to a fine of up to 50,000 penalty units (currently approximately AUD 9.3 million) for a corporation and up to 10,000 penalty units (currently approximately AUD 1.86 million) for an individual. Additionally, under section 13AD, a person who is found guilty of an offence against the Act may also be subject to imprisonment for up to five years. These penalties are intended to deter non-compliance with the Act and ensure that the regulatory framework for the EFTPOS system remains effective in promoting competition and efficiency in the Australian Payments System.

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