APRA vs. ASIC & The New Dual Regulation of Stored Value Facilities Under the Payments Licensing Framework

Introduction

Australia’s payments system is undergoing a significant reform, replacing an outdated regulatory framework with a modern, risk-based system. A core component of this transformation is the introduction of a dual regulation model for Stored Value Facilities (SVFs), creating a shared oversight structure between the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA).

This new payments licensing framework establishes a critical transition point where regulatory responsibility shifts from ASIC’s conduct-focused licensing to APRA’s intensive prudential supervision once a provider reaches a certain scale. For large payment processors, wallet issuers, and gift card aggregators, understanding this dual regulation is essential for navigating the evolving landscape and ensuring ongoing compliance.

Understanding SVFs & the New Regulatory Framework

The Shift from PPFs to SVFs

Australia’s payments system is undergoing significant reform, moving from outdated concepts to a modern, function-based licensing framework. One of the most notable changes is the replacement of the legacy ‘Purchased Payment Facilities’ (PPF) category with the broader and more technology-neutral definition of SVFs. This transition introduces SVFs as a new class of regulated financial product under the Corporations Act 2001 (Cth).

Previously, PPFs were regulated under the Payment Systems (Regulation) Act 1998 (Cth), with oversight from APRA and the Reserve Bank of Australia (RBA), depending on their characteristics. The new framework repeals the PPF definition and absorbs these products into the SVF category. This change is designed to better capture contemporary payment products, such as:

• digital wallets
• prepaid cards

Additionally, this shift aims to simplify the regulatory landscape by:

• removing the RBA’s role in supervising individual providers
• consolidating oversight between ASIC and APRA

Key Features of Stored Value Facilities

A SVF is defined as a facility that allows a person to store value by transferring funds to another person without any immediate onward payment instructions. The user can then redeem that value at a later time by making a non-cash funds transfer. This structure distinguishes SVFs from other payment services where funds are only held briefly to facilitate a specific transaction.

The defining characteristics of a traditional SVF include:

Characteristic	Description
Loading of Funds	The process involves funds being loaded onto an account, facility, or a physical or virtual device.
Storage of Value	The facility holds the customer’s funds, enabling them to direct transfers for payments, send money to another person, or make withdrawals in the future.
Technology Neutrality	The definition covers value stored in various forms, including online accounts, digital wallets, and prepaid cards.

Common examples of payment products that fall under the SVF definition are:

• staged digital wallets
• value stored on online accounts
• both virtual and physical prepaid cards

However, certain arrangements are not considered SVFs. These include:

• credit facilities
• merchant acquiring services
• facilities where value is stored but cannot be used for payment, such as debentures or interests in managed investment schemes

The Dual Regulation Model Involving ASIC & APRA

ASIC’s Role in Conduct & Licensing Oversight

ASIC acts as the primary conduct and licensing regulator for the majority of payment service providers. Its main responsibility is to uphold market integrity and ensure robust consumer protection within the financial system.

Under the new regulatory framework, any provider issuing a SVF will generally need an Australian Financial Services Licence (AFSL) from ASIC. Holding an AFSL means SVF providers must comply with a range of obligations under the Corporations Act 2001 (Cth), which include:

Core Obligation	Detail
Efficient, Honest, and Fair Service	Providing financial services efficiently, honestly, and fairly.
Consumer Funds Safety	Ensuring compliance with rules designed to protect the safety of consumers’ funds, even for SVFs that do not meet the criteria for prudential supervision.

ASIC’s oversight ensures that all SVFs, regardless of their prudential status, are subject to important consumer protection rules.

APRA’s Role in Prudential Safety & Stability

APRA serves as the prudential safety regulator, with a mandate to ensure the stability and resilience of the Australian financial system. While APRA has traditionally overseen banks, insurers, and superannuation funds, its role has now been formally extended to cover major non-bank entities that hold significant customer funds.

This extension acknowledges that large SVFs can present financial stability risks similar to those of bank deposits. APRA is responsible for the prudential supervision of large SVFs that offer deposit-like functionality, such as:

Functionality	Description
Extended Fund Holding	Allowing consumers to hold significant funds for extended periods.
On-Demand Redemption	Permitting redemption of funds on demand in Australian currency.

This oversight treats these major facilities with a level of rigour similar to banking institutions, aiming to prevent financial instability.

A formal Memorandum of Understanding between the RBA and APRA ensures close cooperation and coordination on payments policy, including the supervision of SVFs.

The Prudential Threshold & Graduating to APRA Oversight

Determining the Threshold for Major SVFs

The new regulatory framework establishes a clear “graduation” point where a SVF provider transitions from ASIC’s conduct-focused oversight to APRA’s prudential supervision. This shift is triggered when an entity is classified as a “major stored value facility provider.” While earlier proposals considered thresholds of $50 million or $100 million, the current draft legislation sets the prudential trigger at approximately $200 million.

A provider becomes a Major SVF and subject to APRA’s oversight based on two primary criteria:

Criterion	Description
Stored Value Threshold	The total stored value across all SVFs issued by a corporate group must exceed the $200 million threshold, calculated on a group-aggregated basis.
Redemption Functionality	The facility must offer customers the ability to redeem their stored funds on demand in Australian dollars.

This updated threshold is a critical metric for payment service providers. It defines the line between standard financial services licensing and a more intensive, banking-style regulatory regime.

Implications of Crossing the Prudential Trigger

Exceeding the $200 million group-aggregate threshold has immediate and significant regulatory consequences for a wallet issuer or payment processor. Once a provider is classified as a Major SVF, it is no longer solely regulated by ASIC under an AFSL.

The primary implication is the mandatory requirement to register with APRA. This registration brings the SVF provider under APRA’s direct supervision and compels it to adhere to a stringent set of prudential standards.

This transition represents a fundamental change in regulatory intensity. The focus shifts from market conduct and consumer protection to ensuring financial safety, stability, and entity-level resilience. However, these entities, while subject to APRA’s prudential oversight, are not classified as authorised deposit-taking institutions (ADIs) or banks.

Capital Requirements & Compliance Costs for Large Processors

ASIC Solvency vs. APRA Capital Adequacy

The regulatory requirements for capital and financial resources differ significantly between ASIC and APRA. This distinction reflects their different mandates, with ASIC focusing on market conduct and solvency, while APRA prioritises prudential safety and financial stability.

For SVF providers under the prudential threshold, ASIC’s oversight primarily requires them to demonstrate solvency, which is a key part of the financial requirement obligations as an AFS licensee. This involves maintaining adequate financial resources to operate the business and meet obligations, often through:

• Holding surplus liquid funds (SLF) or adjusted surplus liquid funds (ASLF).
• Complying with client money provisions, which mandate segregating customer funds in a trust account with an Australian ADI.

In contrast, APRA imposes a much stricter capital adequacy regime on Major SVFs, which is more aligned with banking standards. This prudential approach requires providers to hold significant, high-quality capital reserves to absorb potential losses and ensure the entity’s resilience. Key requirements include:

• Maintaining Common Equity Tier 1 (CET1) Capital, the highest quality of capital.
• Holding capital equivalent to a minimum of 4 per cent of total outstanding stored value liabilities, a figure APRA can increase based on the provider’s specific risk profile.

The Financial Impact of APRA Licensing

The transition from ASIC’s conduct regulation to APRA’s prudential supervision brings a substantial increase in compliance costs, which can be a “make or break” factor for a payment processor’s business model. APRA’s framework is intentionally pricier and intrusive to ensure the stability of entities holding significant public funds.

The cost disparity is evident from the initial setup phase. The process to apply for an AFSL from ASIC typically involves setup costs of around $50,000.  In stark contrast, preparing for and obtaining APRA registration can exceed $500,000 due to the need for more in-depth engagement, robust prudential systems, and extensive legal and governance frameworks.

Beyond the initial setup, the ongoing financial burden of APRA supervision is considerably higher. This is driven by the requirement to hold substantial capital reserves, potentially amounting to millions of dollars, which cannot be used for operational purposes or business growth.

Furthermore, APRA-regulated entities face more intensive reporting obligations and the need for larger, specialised compliance and prudential risk management teams, making ongoing compliance multiples pricier than under the ASIC regime.

Strategic Structuring & Managing Run-off Risk

Planning for Run-off Risk

The “run-off” risk refers to the significant danger a rapidly growing payment business faces when its success pushes its stored balances over the regulatory threshold, inadvertently triggering APRA’s oversight.

For a fintech, unexpectedly crossing the $200 million mark can constitute a regulatory failure. This may lead to immediate and intrusive intervention without the necessary capital or governance frameworks in place.

This transition represents a fundamental shift in regulatory intensity that can be a “make or break” factor for a business model. Therefore, success that leads to such growth must be planned for well in advance.

The journey to APRA compliance requires a substantial lead time, often spanning multiple years, to:

• build the required capital reserves,
• establish robust risk frameworks, and
• implement bank-like governance structures.

Businesses should not wait until they approach the limit. Early engagement with advisors is crucial to navigate this graduation smoothly.

Structuring Strategies to Manage Stored Value

Payment businesses can adopt legitimate structuring strategies to manage their stored value liabilities and remain under the prudential threshold. While regulatory arbitrage is discouraged, certain business model choices can legitimately affect a provider’s status, and regulators will assess the economic reality of any arrangement.

One of the most common and effective strategies is “auto-sweeping.” This involves designing a wallet or facility so that customer funds are not held by the provider overnight. Instead, the funds are automatically transferred, or “swept,” to the user’s nominated bank account, which is held with an ADI. This process ensures that the facility does not store value for extended periods, potentially preventing it from meeting the definition of an SVF that accumulates large balances.

Other legitimate strategies to manage the threshold include:

Strategy	Description
Using pass-through models	Structuring the service, so customer funds are held directly by a licensed custodian or partner ADI, meaning the provider does not hold funds on its balance sheet.
Capping individual balances	Limiting the maximum amount of value a single customer can store in their account to help control the overall aggregate balance across the platform.

Conclusion

Australia’s payments system is undergoing a major reform, establishing a dual regulation model for SVFs overseen by ASIC and APRA. This new licensing framework creates a critical graduation point for payment service providers, where exceeding the $200 million stored value threshold triggers a shift from ASIC’s conduct-focused licensing to APRA’s intensive and costly prudential supervision.

Navigating this new regulatory landscape requires specialised guidance to ensure your fintech is prepared for the updated licensing and compliance requirements. To leverage our trusted expertise and turn these regulatory challenges into strategic opportunities for your business, contact our expert AFSL application lawyers at AFSL House today.

Frequently Asked Questions (FAQ)