Renewed focus on domestic and global payments systems

2024 promises to be a year of increased focus on the payments sector as the Government continues its ongoing consultation into the modernisation of the payments system.  In particular, Treasury has signalled the implementation of an enhanced regulatory framework for the regulation of Payment Service Providers (PSPs) with the release of a consultation document. The paper sets out the following: 

• Objectives of the reform of regulation for PSPs
• Detailing of risks that the reforms seek to mitigate e.g., operational, financial and competitive market
• Listing of proposed payment functions
• Streamlining of licensing processes for PSPs
• Proposed key obligations for entities that provide a financial service such as liquidity, compensation arrangements, and audit obligations 
• Regulatory framework for Stored-value Facilities including Payment Stablecoins
• Technical standard setting framework for the payments industry

A copy of the Treasury consultation document can be found at the consultation site¹ . The heightened regulatory framework is expected to increase the level of transparency and public confidence in the sub-sector.

Hot on the heels of the government's ongoing consultation into the modernisation of payments system, AUSTRAC also announced its 2024 regulatory priorities²  emphasising its focus on regulatory activity in the following sectors:

• Digital Currency Exchanges (DCEs)
• Payment Platforms
• Bullion
• Non-Bank Lenders and Financiers

The inclusion of payments in its 2024 priorities indicates where the government and the regulator think the greater and more pressing risks to the Australian community and economy lie. This approach is consistent with recent guidance by leading overseas regulators³ such as the FCA and EBA.  The continued rise of scams in Australia has, and continues to, highlight the vulnerabilities, and risks inherent in these sub-sectors.  

Nexus of fast payment platforms to rises in financial crime

The recent announcement by the G20 Group of Countries and the Financial Stability Board to deliver on a roadmap to enhance the speed and efficiency of cross border payments by 2027⁴ has been met with sound resistance by parties questioning the money laundering and related criminal vulnerabilities.

In a recent series of research papers on the Future of Financial Intelligence Sharing (FFIS) prepared by the UK thinktank Royal United Services Institute (RUSI), it was alleged that there had not   been appropriate consideration on the impacts of economic financial crime security arising from the proposed increase in the velocity of payments through the global financial system.  In particular RUSI highlighted, as part of its narrative:

• a lack of joined-up policy thinking between G20-led cross-border payments reform and economic crime security considerations
• A policy drive towards faster and instant cross-border payments threatens to enable fraud and money laundering to be more efficient⁵
• It does not appear that there has been included any assessment of, or mitigation against, the increased risk of cross-border fraud and associated money laundering inherent in faster cross-border payments
• The absence of formal consideration of the risks is likely to have wide-ranging negative impacts to consumer financial safety, fraud recovery rates, law enforcement effectiveness against money laundering and national security in terms of sanctions implementation
• In summary, the current G20 Roadmap targets, priority themes and actions appear insufficient to enable integrated and balanced considerations of economic crime risks.

The UK’s economic crime strategy seeks to explore the role that the UK’s payments data could undertake in relation to the identification and mitigation of illicit finance. Deloitte’s UK practise has recently produced a paper on the potential application of payments data in the fight against financial crime⁶. Deloitte Australia is exploring the application of this paper in the Australian context.

Conclusion

In short, the digitisation and application of new and emerging technologies both domestically and globally is greatly increasing the nature, volume, and frequency of payment schemes. This development in turn is being monitored by global regulators who seek to ensure regulation delivers  a level playing field and is effective in preventing  payment systems being utilised to move the proceeds of illegal activities. In addition, payments data is being examined for its broader application against financial crime.

Businesses that offer payment services and crypto services should consider the rapidly evolving regulatory environment and the need to manage and mitigate emerging risks before they become a legal and reputational issue.

Services

With a unique combination of expertise, local and global experience, deep understanding of the drivers of the AML/CTF regime in Australia, and value through proven global methodologies, tools, and deep networks, we can help payment service providers to better prepare for this and provide a range of services including:

• Risk assessments
• Gap analysis Investigations
• Independent reviews and compliance inspections
• Advisory and consulting services
• Remediation and lookback reviews
• Regulatory response
• Data analysis services 

To learn more about Deloitte’s financial crime solutions, please click here.

Reference

1. The Treasury, Payments System Modernisation 
2. AUSTRAC, Regulatory Priorities for 2024 
3. FCA, Priorities for payments firms, EBA Press Release 
4. FSB, G20 Roadmap for Enhancing Cross-border Payments
5. FFIS, The case for the G20 cross-border payments reform ‘Roadmap’ to embed economic crime security by design
6. Deloitte, Leveraging the payments architecture in the fight against economic crime