Bitcoin wallets are a growing part of the financial system, driven in particular by advancements in mobile technology and consumers increasing propensity to purchase goods and services online or via mobile applications. Some, but not all, digital wallets hold stored value on behalf of customers and are pre-paid facilities. Others (such as Apple Pay) hold customers’ credit/debit card details and only facilitate payments from that nominated account.
The regulatory framework for providers of Bitcoin wallets involves three regulators—the Reserve Bank of Australia (RBA), ASIC and APRA. The RBA is responsible for the overarching framework set out in the Payments System (Regulation) Act 1998 (PSRA). ASIC is responsible for regulating digital payments services that are financial products such as non-cash payments facilities. APRA’s role is to licence and supervise larger providers of widely used facilities that hold stored value under the Purchased Payments Facilities (PPF) framework, as these are functionally akin to bank accounts (but are not protected accounts under the Financial Claims Scheme).
To be licensed by APRA, the facility must be widely available as a means of payment and redeemable for AUD7 ; and hold customer funds above the limited value threshold ($10 million) 8 . Currently there is one authorised PPF provider.
Proposed new framework – Bitcoin wallets
Through the Council of Financial Regulators (CFR), the RBA, APRA, ASIC and the Treasury are reviewing this framework to reduce complexity, increase competition and foster innovation, leading to improved consumer outcomes. Doing so will also respond to recommendations from both the 2014 Financial System Inquiry and the Productivity Commission’s 2018 inquiry into competition in the Australian financial system.
The CFR has recently delivered a paper to Government setting out its recommendations for a new graduated framework for stored value facilities that is simplified, easier to understand and navigate for industry and seeks to regulate entities proportionate to the risks of their activities9 . The new framework is intended not only to be fit for purpose for the current financial system but also be able to accommodate future developments and technological advances, such as proposals for global stable coin eco-systems that have been the subject of significant attention in recent months.
Under this proposal APRA’s role in the framework would be to oversee wallets that are widely used as a means of payment and store significant value for a reasonable amount of time (e.g. potentially Facebook’s Calibra proposal). APRA’s framework would not be expected to capture digital wallets that are primarily used to pass payments through (e.g. Apple Pay). This is depicted in Figure below.
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