Legislation and regulators are increasingly catching up to the evolution of Web-based business practices and businesses involved in financial services connected with the Web. This article briefly overviews the legal context (under financial services law in Australia) for financial services involving non-cash payments.  

Consumers and businesses are increasing their use of the Web for financial transactions. Banks and other financial institutions are introducing innovative payment mechanisms. So it is no surprise that more and more businesses seek to act as Web-based payment facilitators.

Australian financial services law is complex. Businesses seeking to introduce or change "non-cash payment facilities" (NCP facilities) are well advised to obtain legal advice reviewing in detail their specific circumstances and the relevant law. The comments below are merely an overview of some considerations or current topics of interest on non-cash payment facilities.  

1.  Role of Reserve Bank and APRA

There is a broad regulatory context relevant to businesses seeking to act as Web-based payment facilitors.

For legal review of innovative payment mechanisms, involving the Web or otherwise, the first place to look is often the Payment Systems (Regulations) Act 1998 (Cth). This Act regulates "authorised deposit taking institutions", eg banks and similar financial institutions.

At this level the regulators include the Reserve Bank of Australia and the Australian Prudential Regulation Authority (APRA). The Reserve Bank is responsible for regulating "purchased payment facilities" (eg stored value cards). The holder of the stored value (eg a bank) for a purchased payment facility must be either approved as an authorised deposit taking institution by the Reserve Bank or APRA.

2.  ASIC's approach to NCP facilities 

On 15 November 2006, the Australian Securities and Investments Commission (ASIC) issued a Media and Information Release for NCP facilities. It deals with ASIC's approach under the Corporations Act 2001 (Cth) (Act) for regulation of NCP facilities. 

Financial services legislation in Australia has a very wide definition of financial products including NCP facilities. Following are some aspects of the relevant law. 

• Reliefs - Although NCP facilities are included in the Act as financial products requiring a licence, ASIC can provide relief from some of the obligations of Australian Financial Services Licence (AFSL) holders. 
• Class orders - ASIC has issued class orders (ie orders applicable to a group in a particular area of activity) containing various reliefs in the case of the following NCP facilities: (1) low value NCP facilities, (2) gift vouchers or cards, (3) prepaid mobile phone accounts, (4) loyalty schemes, and (5) electronic road toll devices
• Credit facilities - Credit facilities are specifically excluded from the definition of financial product (section 765A of the Act). Therefore providers of credit facilities do not require an AFSL. However this does not mean such providers are exempt from the consumer protection provisions of the Act or the Uniform Consumer Credit Code.
• Loyalty schemes - Care is needed when products are packaged. Packaging a non-regulated credit facility such as credit cards with a loyalty scheme does not make the whole package exempt from the licensing requirements. The loyalty scheme will still be subject to licensing requirements.
• Electronic Funds Transfer Code - If you are involved in electronic funds transfer, it is always prudent to consult the Electronic Funds Transfer Code. This Code is amended by ASIC from time to time. A wide variety of organisations have adopted the Code. These include banks, building societies, credit unions and other financial institutions. The credit unions include Fire Brigades Employees' Credit Union Limited, Wyong Council Credit Union Ltd and Queensland Teachers' Credit Union Limited.
• Policy Statement No. 185 - Policy Statements from ASIC provide an insight into ASIC's regulatory practices, including for granting reliefs from obligations and responsibilities under the Act. ASIC issued Statement No. 185 in November 2005 for regulation of NCP facilities. It sets out instances when reliefs may be granted. In this connection ASIC stresses the importance of good and adequate disclosure to consumers. Providers of NCP facilities should review at least the following considerations highlighted in ASIC's statement: 

(a)    whether any of the terms and conditions may be unilaterally varied and how consumers could find such variations; (b)    whether the facilities have an expiry date and how the consumers can find that date; (c)   fees and charges, how they may be varied and how the consumers can find out about such variations; (d)   the manner in which unauthorised and mistaken transactions will be dealt with; and (e)   how any disputes will be dealt with.

3. Conclusion - the need for caution and a watching brief

ASIC has a record of taking action for non-compliance. For example in November 2004 ASIC announced it had acted to close down the following three Websites: www.goldex.net, www.sydneygoldsales.com and www.ozzigold.com. These sites were associated with Australian-based businesses or local agents for similar enterprises abroad. They exchanged conventional currencies to electronic currencies and vice-versa, and charged a commission for their services. The businesses did not hold AFSLs.

More recently in April 2006, following an ASIC review, ASIC announced that superannuation clearing houses operated NCP facilities and hence require an AFSL. Superannuation clearing houses are generally services provided to employers, through which employers make non-cash payments to be distributed to their employees' chosen superannuation funds.

Financial services available in Australia and abroad are undergoing massive changes. Complexity is being added by the evolution of new arrangements and hybrids falling within various keywords or phrases such as  - e-commerce, online business, Web-based payment facilities, and Internet payment gateways for real-time credit card processing. A watching brief is called for as regulators such as ASIC, the Securities and Exchange Commission in the US and the Financial Services Authority in the UK are constantly revisiting issues confronting providers and users of financial services.