The Australian Securities and Investments Commission (ASIC) today released a new policy on the regulation of non-cash payment (NCP) facilities under the Corporations Act.

ASIC’s policy on the regulation of NCP facilities is set out in Policy Statement 185 Non-cash payment facilities [PS 185].

The release of this policy statement completes one of ASIC’s eight projects implementing the Australian Government’s proposals paper Refinements to Financial Services Regulation (2 May 2005).

‘The Financial Services Reform Act 2001 brought NCP facilities into the financial services regime that ASIC administers. They are regulated as financial products under the Corporations Act because in many cases important consumer interests are involved and full regulation through the licensing and disclosure regime is needed’, Mr Malcolm Rodgers, ASIC’s Executive Director of Regulation said.

‘However, ASIC recognises that the broad terms of the definition in the Corporations Act means some facilities that are technically NCP facilities do not require full regulation. So we have adopted a flexible approach to regulating NCP facilities’, Mr Rodgers said.

‘This means we have used our powers under the law to adapt the NCP facilities regime so it works consistently with the underlying policy.’

The policy statement outlines the general approach that ASIC will take in regulating NCP facilities, including the factors that ASIC will take into account in considering applications for individual or class order relief.

The policy statement also describes the class order relief ASIC has granted to:

• low value NCP facilities [CO 05/736];
• gift vouchers or cards [CO 05/738];
• prepaid mobile phone accounts [CO 05/740];
• loyalty schemes [CO 05/737]; and
• electronic road toll devices [CO 05/739].

‘ASIC knows that this area is evolving and new types of NCP facilities might emerge. We may, therefore, need to review our policy in the future to take into account industry developments’, Mr Rodgers said.

The attachment provides further detail about ASIC’s policy statement, as well as transitional issues. A copy of PS 185 can be obtained from the ASIC website at www.asic.gov.au or by contacting the ASIC Infoline on 1300 300 630.

End of release

Download a copy of:

• Policy Statement 185 Non-cash payment facilities [PS 185]
• Regulation impact statement for [PS 185]
• [CO 05/736] Low value NCP facilities
• [CO 05/738] Gift vouchers or cards
• [CO 05/740] Prepaid mobile phone accounts
• [CO 05/737] Loyalty schemes
• [CO 05/739] Electronic road toll devices

Attachment to [IR 05-60]: ASIC adopts a flexible approach to the regulation of non-cash payment facilities

Background

The Financial Services Reform Act 2001 introduced NCP facilities as a new kind of financial product to be regulated under Chapter 7 of the Corporations Act. An NCP facility is a facility through which a person can make a payment, or cause a payment to be made, otherwise than through the physical delivery of Australian or foreign currency. Cheque accounts, travellers cheques, stored value cards, electronic cash, direct debit services, gift vouchers and cards, funds transfer services, electronic bill payment services and some loyalty schemes all fall within the Corporations Act definition of NCP facility.

As part of the regulatory regime, persons providing financial services in relation to NCP facilities are subject to the licensing, conduct and disclosure provisions of the Corporations Act.

The Corporations Act and Corporations Regulations 2001 exclude certain payment facilities from being financial products (e.g. a facility that allows payments to be made to one person: s763D(2)(a)(i); an NCP facility that is an incidental component of another facility: s763E). The Corporations Regulations also exempt certain persons from the requirement to obtain an Australian financial services licence for services in relation to NCP facilities (e.g. issuers of an NCP facility where payments are made to the issuer or to a related body corporate of the issuer: reg 7.6.01(1b)).

Policy proposal paper

ASIC issued a policy proposal paper (PPP) on 22 December 2004 which canvassed:

• how ASIC planned to approach the regulation of NCP facilities on an ongoing basis;
• what class order relief ASIC was considering from the licensing, conduct and disclosure obligations of the Corporations Act for low value NCP facilities and NCP facilities issued under loyalty schemes; and
• how ASIC proposed that the Corporations Act applied to NCP facilities not covered by the proposed relief.

PS 185 takes into account feedback received during consultation with industry and consumer groups, as well as 27 written submissions ASIC received in response to the PPP. ASIC thanks all those who provided feedback and made submissions on the PPP.

Our policy statement

Section A of the policy statement outlines ASIC’s general approach to regulating NCP facilities. ASIC provides guidance on the factors that will be taken into account when considering applications for individual or class order relief for NCP facilities.

Section B of the policy outlines the conditional class order relief granted to persons providing financial services in relation to low-value NCP facilities from the licensing, conduct, disclosure and hawking provisions of the Corporations Act. The relief will apply to low value NCP facilities that meet the following test:

People relying on this relief must meet minimum consumer protections: see [CO 05/736].

Section C sets out ASIC’s approach to certain types of NCP facilities, namely:

• gift vouchers or cards – ASIC has granted unconditional class order relief to persons providing financial services in relation to gift vouchers or cards from the licensing, conduct, disclosure and hawking provisions: see [CO 05/738]. ASIC will follow developments in this market to ensure that promotion of consumer protection and market integrity objectives is maintained;
• prepaid mobile phone accounts – ASIC has granted unconditional relief to persons providing financial services in relation to prepaid mobile phone accounts from the licensing, conduct, disclosure and hawking provisions of the Corporations Act: see [CO 05/740]. ASIC will follow developments in the mobile telecommunications industry to ensure that promotion of consumer protection and market integrity objectives is maintained;
• loyalty schemes – ASIC has made a declaration that loyalty schemes are not financial products for the purposes of Ch 7 of the Corporations Act where they meet the characteristics set out in [CO 05/737]. Loyalty schemes constituting NCP facilities will still be subject to the consumer protection provisions under Div 2 of Part 2 of the Australian Securities and Investments Commission Act 2001 (ASIC Act); and
• electronic road toll devices – ASIC has made a declaration that electronic road toll devices are not financial products for the purposes of Ch 7 of the Corporations Act. Electronic road toll devices constituting NCP facilities will still be subject to the consumer protection provisions under Div 2 of Part 2 of the ASIC Act.

The policy statement does not explicitly deal with superannuation clearing houses. ASIC is currently undertaking a fact-finding exercise to better understand the operation of these facilities. ASIC reminds providers they need to reach their own views about whether or not their facility amounts to an NCP facility. For some guidance, see the Schedule to the policy statement that describes the overall framework of provisions governing the regulation of NCP facilities.

Transition

When will our class orders commence?

The class order relief for low value NCP facilities, gift vouchers or cards and prepaid mobile phone accounts will commence on the later of:

The class order relief for loyalty schemes and electronic road toll devices will commence on the date the instruments are registered under the Legislative Instruments Act 2003.

Note: An instrument is registered under the Legislative Instruments Act 2003 when it is registered on the Federal Register of Legislative Instruments (FRLI) in electronic form. The FRLI may be accessed at http://www.frli.gov.au.

Interim relief

ASIC issued guidelines for interim conditional relief for loyalty schemes and low value NCP facilities in February 2004: see Information Release [04-06] ASIC guidelines for interim relief for loyalty schemes and Information Release [04-07] ASIC guidelines for interim relief for low value non-cash payment facilities. This interim relief was extended from 30 June 2005 to 28 February 2006: see Information Release [05-27] ASIC extends interim relief for some non-cash payment facilities.

No-action positions

Pending finalisation of its policy statement on NCP facilities, ASIC issued no-action letters to certain financial services providers in relation to specific NCP facilities. These letters expire on 28 February 2006.

Low value NCP facilities

Persons relying on [CO 05/736] are required to set out any expiry date of a facility on the physical device (if there is one) used to make non-cash payments. Otherwise, any expiry date must be set out in the initial disclosure document given to retail clients. Persons relying on this class order need only comply with this condition where the facility is issued on or after 1 June 2006.

Gift vouchers or cards

Where persons providing financial services in relation to gift vouchers or cards rely on [CO 05/738], those gift vouchers or cards must adequately and appropriately set out any expiry date in accordance with the relief where facilities are issued on or after 1 June 2006.