The Federal Government has released the exposure draft of the Treasury Laws Amendment Bill 2025: Payments System Modernisation, which will overhaul how payment service providers (PSPs) are regulated in Australia.

The Bill replaces the long-standing “non-cash payment facility” framework with new categories of financial products and services — including Tokenised Stored Value Facilities (SVFs), payment instruments, and payment services — to better capture emerging payment technologies such as digital wallets and currency-backed stablecoins.

The Bill intersects with the Treasury Laws Amendment Bill 2025: Digital asset, and tokenised custody, platforms, which sets out a comprehensive regulatory framework for digital asset businesses in Australia.

Both need to be read in conjunction, given that currency stablecoins are the lifeblood of the global digital assets ecosystem. You can read our detailed analysis of that legislation here.

Overview

The Bill is designed to update the regulatory framework for payment services providers (PSP), in order to reflect the evolution of a global market which is increasingly seeing new products e.g. tokenised fiat money, and systems. At a high level:

• There are new definitions to become familiar with e.g. currency stablecoins are now "Tokenised Stored Value Facilities" (SVF), and also expansions to the regulatory net i.e. what activities comprise payments functions;
• An Australian financial services licence (AFSL) will be required for PSPs which perform a payments function, and there will be key modifications from the usual AFSL framework;
• APRA will have oversight of designated PSPs, and major SVF providers, and prudential regulation will - for the first time - be applied to digital assets issuers; and
• A revised ePayments code will come into effect.

The change to use new, specific financial products and services under these payment reforms is designed to clarify uncertainty around the (to be replaced) "Non-cash payment facilities" (NCPF) in the Corporations Act 2001 (Cth) (Corporations Act), extend the scope of regulated activities to service providers that perform a key role in the payment chain (but that are not currently covered by NCP facility) and recognise that some activities are more appropriately regulated as financial services rather than financial products. These changes, in part, stem from the release of ASIC CP 381 in December 2024 and the ensuing conjecture about whether a currency stablecoin could, in and of itself, be a financial product i.e. without surrounding payments infrastructure.

Goodbye NCPF

The first thing to note about the new Bill is that it dramatically expands the regulatory and AFSL licensing framework payments activities. Its focus is on introducing new, defined types of financial products and services provided by PSPs by adding “SVFs” and “payment instruments” as new kinds of financial product, and “payment service” as a new kind of financial service. The general obligations that apply to AFSL holders will apply, and these new concepts will replace the much-loved existing concept of "non-cash payment facility" in the Corporations Act.

This change is primarily anchored in the performance of certain payment functions, which underpins the new AFSL authorisations, and includes the following:

• Storing funds e.g. prepaid cards, digital wallets that store value, and stablecoins that reference the value of a single currency;
• Movement of funds e.g. merchant acquiring services, domestic and cross-border remittance services; and
• Instructions. This can be broken down further into: payment instruments e.g. debit and credit cards; payment initiation services e.g. direct debit services, and "PayTo" services; and, payment technology and enablement e.g. payment gateways, and pass-through digital wallets.

The activities will generally require organisations to obtain an appropriately authorised AFSL, subject to any exemptions. In that regard, Tranche 1b exposure draft legislation is expected to be consulted on in early 2026. It will cover additional licensing obligations such as safeguarding payment-related money, licensing exemptions and exclusions, APRA powers, a framework for unclaimed monies, and the new ePayments Code rule-making power.

There are a number of interesting granular details to dive into in the Bill. For example:

• in addition to creating new definitions to become familiar with, it also creates new terms relevant to the assessment of whether a payment function has been engaged in. They include the terms "transfer", "funds" and "non-cash funds transfer", and the detail is important. For instance, a "transfer" is defined very broadly as anything that can be the "…economic equivalent of a transfer of funds". Digital tokens which do not meet the term "funds" - which covers money, another medium of exchange prescribed by the regulations, or a right to redeem either of those things - are not intended to be covered. The clear exemption outlined is digital tokens connected to tokenised SVFs i.e. currency stablecoins, as they have a right to claim money from the tokenised SVF provider. (For a tokenised SVF, the amount that may be redeemed when exercising this right must be fixed, and denominated in a single currency.) These definitions will prove critical in digital asset token assessments, lest digital tokens inadvertently trigger these new rules (which rest on different AFSL authorisations to the DAP / TCF authorisations proposed in the Treasury Laws Amendment Bill 2025: Digital asset, and tokenised custody, platforms exposure draft legislation);
• the definition of “non-cash funds transfer" is largely the same as the existing NCPF concept in Chapter 7 of the Corporations Act, though here a non-cash funds transfer also takes place in round robin situations when a payer transfers funds from one facility held by the payer to another facility held by the payer. In these cases, the payer is also the payee and interposed parties are to be disregarded under the Bill (even if a PSP);
• SVFs may be characterised as such regardless of how, and by who, the rights are redeemed. They are defined by the ability to store "funds" without an onward payment direction, recognising the secondary market inherent in SVFs e.g. person A acquires a gift card, or USD stablecoin, and transfers it to person B who has the right to redeem it (subject to AML / CTF, sanctions and investor classification i.e. wholesale or retail requirements);
• sensibly, in connection with currency stablecoins, the Bill clarifies the distinction between a tokenised SVF - being a facility - and the token being transferred itself - being the stablecoin. It provides that: "a person only acquires a tokenised SVF when it is issued to them. Issuance occurs when the person enters into the arrangement that constitutes the tokenised SVF as a client and effectively opens an account with the provider. A client disposes of a tokenised SVF when it closes its account with the provider. The ‘payment stablecoin’ is not itself regulated as a financial product as it is connected to the tokenised SVF, which is a financial product". The distinction is important, as if the payment stablecoin itself was the financial product, acquirers and redistributors on the secondary market - who may not operate accounts capable of characterisation as a tokenised SVF - could be inadvertently brought within the scope of AFSL obligations;
• in considering activities which fall within the payment function category of "instructions", it does not matter if an instruction is incorrect, and even if the transaction has not been completed; taking action to obtain, on behalf of their client, authority from the payer to initiate one or more non-cash funds transfers but not proceeding is enough to fall within the regulatory net;
• infrastructure providers who provide services to payers and payees involved in making non-cash funds transfers are caught as PSPs, and include digital wallet services, where virtual cards can be added to a wallet application, and payment gateways that enable payees to accept payments;
• there will be new requirements to safeguard payment-related money, based on the client money regime in Division 2 of Part 7.8 of the Corporations Act. It will have adjustments to apply effectively for money that is being held in, or transferred through, SVFs, payment instruments and payment services. The primary method of safeguarding for licensees will be segregating payment-related money in a trust account with an Australian bank - whether or not this exacerbates debanking issues in the digital assets industry remains to be seen. The Explanatory Memorandum for the Bill does appear to foresee this issue, however, foreshadowing the possibility of appropriate "other safeguarding methods" such as the provider holding an insurance policy or a guarantee from an ADI or APRA-regulated insurer; and
• the Minister will have a new rulemaking power to enable the Minister to create a new, mandatory ePayments Code. It will apply to all PSPs, and need to set out core obligations for unauthorised transactions and mistaken payments, among other areas.

The financial thresholds in the Bill are also noteworthy. They modify when a PSP is dealing with a "retail" or "wholesale" client (the monetary threshold is to be set out in forthcoming regulations), which has a large impact on the surrounding compliance and disclosure a PSP is required to undertake e.g. PDSs for retail clients. The existing exemption applicable to "sophisticated clients" is also removed for the provision of SVFs, payment instruments or payment services, and there are dedicated provisions for intermediary PSPs who deal with retail clients directly i.e. from an upstream PSP.

Currency Stablecoins

There are some unique rules for Tokenised SVFs i.e. currency stablecoins. Key ones include that they:

• must publish on the internet a notice of any material change or significant event that may reasonably affect either the provider’s ability to meet its redemption obligations, or the value of the reserve assets held to meet those obligations. The notification must be published before, or as soon as possible after, the change occurs (though does not require a PDS or SPDS amendment) - this is essentially a materiality disclosure like on public markets;
• Tokenised SVF providers must also, within the first seven days of each calendar month, publish on the internet information relating to reserve assets and outstanding liabilities, as may be required by the regulations. This is to prevent, or at least mitigate, a TerraUSD/Luna type collapse, where it lost its intended 1:1 peg with the US dollar in May 2022 causing widespread losses for investors;
• Failure to do the above is a criminal offence, as is publishing information that is misleading or deceptive, or has an omission. Under s.1022B of the Corporations Act, there is also a private right for customers to recover loss or damage as a result of the tokenised SVF failing to meet its obligation to publish notifications of material changes or significant events, failing to publish a required monthly disclosure, or publishing a required monthly disclosure that is misleading or deceptive or has an omission. Class actions lawyers will be taking note, as they have done with stock market announcements, though there is a limited defence where the issuer has taken "reasonable steps" e.g. to obtain information which is not misleading and deceptive. We expect the development of sophisticated governance and control frameworks around the publication of information to the market, similar to what exists now for public companies making stock market announcements;
• once a currency stablecoin issuer - where across one instrument or multiple currency stablecoin instruments e.g. of different fiat denominations - reaches over A$200 million in value under reserves, it will then become an APRA-regulated body that is subject to prudential requirements. (The Minister may designate a PSP for prudential regulation, on the basis that the PSP raises broader risks for stability of the Australian financial system. For example, if the popularity of a USD-denominated foreign stablecoin "dollarises" the local Australian economy. It is a similar "break glass" provision to those powers contained in the Treasury Laws Amendment Bill 2025: Digital asset, and tokenised custody, platforms draft exposure legislation); and
• despite the above, these currency stablecoin issuers will not be treated as banks. They will be required to register with APRA, and comply with prudential standards, but will not be required to be licensed by APRA. APRA will recalibrate its prudential standards to reflect the more limited role and usage of SVFs and risks for broader financial stability, compared to banking business.

Next steps

The AFSL regime will dramatically expand to cover PSPs, and all those interacting with digital assets under the Bill and accompanying Treasury Laws Amendment Bill 2025: Digital asset, and tokenised custody, platforms. But it will also be altered, through targeted changes within the legislation.

The first step is a mapping exercise for all the products and services your organisation undertakes, to see if it is caught within the ambit of the new legislation. From there, what existing and new AFSL (and maybe APRA) obligations are likely to flow can be mapped.

Given the technical detail - primarily the need to match activities with AFSL authorisations precisely (the financial services regulatory space is one that resists generalisation, and broad-brush approaches) - and the time, cost and operational implications that flow from falling within the new and modified regulatory net, that mapping exercise is best started now.

Authors

Liam Hennessy | Partner

Clarissa Lee | Senior Associate

Joseph Williamson | Lawyer

Haydon McLoughlin | Law Graduate

Isaac Jeong | Law Clerk