The Australian Prudential Regulation Authority (APRA) today released a draft prudential standard and authorisation guidelines for providers of purchased payment facilities or PPFs, a new class of authorised deposit-taking institution (ADI). PPFs are new forms of payment instruments such as stored-value cards and internet-based payment systems or ‘electronic purses’.

The draft proposals require PPFs to:

• obtain a conditional authorisation limited to providing PPF business;
• meet ADI prudential standards on governance, fitness and propriety, outsourcing, business continuity management and auditing requirements; and
• meet a simplified capital adequacy framework if the PPF also has stored value at risk. Under the proposed framework, such PPFs would at all times have to hold:
  • Tier 1 capital at least equal to the larger of either the minimum start-up capital as determined by APRA or five per cent of total outstanding PPF liabilities; and
  • high quality liquid assets at least equal to the value of the float.

APRA Chairman, Dr John Laker, said it was appropriate for APRA to release its proposed prudential framework as PPFs undertaking banking business begin commercial operations in Australia.

“APRA’s guiding principle is to balance the need to protect the customers of PPFs with the objective of supporting the development of a competitive and innovative financial sector,” he said.

“It is vital for the long-term development of innovative payment facilities that customers can have confidence that PPFs operate prudently.”

Comment on the draft standard and guidelines is invited by 30 June 2005. The authorisation guidelines, prudential standard and accompanying discussion paper are available on APRA’s web site.

The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, friendly societies, and most members of the superannuation industry.APRA is funded largely by the industries that it supervises. It was established on 1 July 1998.APRA currently supervises institutions holding approximately $2.0 trillion in assets for 20 million Australian depositors, policyholders and superannuation fund members.