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Treasury's payments licensing reforms will require remittance operators that hold or pass through client funds to safeguard those funds — either by holding them in a segregated trust account or protecting them with an equivalent guarantee or insurance arrangement. If you take a customer's money on Monday and pay the beneficiary overseas on Wednesday, those funds in transit will fall under the new safeguarding regime. The era of commingling client money with operating capital is ending.
This is one of the most consequential changes in the proposed Payment Service Provider (PSP) licensing framework, and it affects almost every money transfer operator (MTO) in Australia. Whether you run a small remittance dealer servicing a single corridor or a multi-agent network moving millions a month, you need to understand which licence category applies to you and what safeguarding will cost. This article breaks down the safeguarding obligations, the licence tiers, the timeline, and the practical steps to prepare.
Key Takeaways
- Treasury's PSP licensing reforms introduce a tiered Australian Financial Services Licence (AFSL) framework with up to 10 payment function categories, several of which capture remittance and money transfer activity.
- Safeguarding requirements will apply to both stored-value facilities (where you hold customer balances) and pass-through funds (money in transit between collection and payout).
- You will likely need to hold safeguarded funds in a statutory trust account, or protect them with an insurance or guarantee arrangement of equivalent value.
- The reforms align Australia with international standards set by the FATF and mirror safeguarding regimes already operating in the UK and EU.
- MTOs should map their fund flows now, review banking arrangements, and budget for higher capital, audit, and reconciliation costs before the regime takes effect.
Why Treasury Is Reforming Payments Licensing
Australia's payments regulation has not kept pace with how money actually moves. The current patchwork — combining AUSTRAC registration under the AML/CTF Act 2006, the AFSL regime under the Corporations Act, and a voluntary ePayments Code — leaves gaps. A consumer sending money through an MTO has limited protection if that operator collapses while holding their funds.
Treasury's reforms, first set out in the 2023 A Strategic Plan for the Payments System and progressed through consultation papers in 2023 and 2024, aim to fix this. The centrepiece is a modernised licensing framework that brings payment service providers under a tailored AFSL regime, with obligations scaled to the risks each provider poses.
For remittance operators, the most important shift is the introduction of explicit client money protection. The Reserve Bank of Australia (RBA) and Treasury have both flagged that consumers who hand money to a payment provider expect it to reach the destination — and the law should guarantee that expectation is met even if the provider fails.
This change sits alongside the 2026 AML/CTF reforms and Treasury's broader work on the scams prevention framework. Together they represent the most significant overhaul of payments and remittance regulation in nearly two decades.
What Counts as Client Funds Under the New Regime
The safeguarding obligation turns on whether you hold money that belongs to your customers. Treasury's framework distinguishes two situations that capture most remittance activity.
Stored-Value Funds
A stored-value facility (SVF) holds customer money over time — think prepaid wallets, balances, or accounts where a customer loads funds and draws them down across multiple transactions. If your platform lets customers hold a balance before sending, you are storing value.
Under the reforms, holders of significant stored value will face the most demanding safeguarding and prudential obligations, because customer funds sit on your books for extended periods. The RBA has signalled it will retain a role in regulating large SVFs of systemic importance.
Pass-Through Funds
Most traditional MTOs operate a pass-through model: you collect a customer's money, hold it briefly while you arrange settlement, and pay the beneficiary. Even though the funds move quickly, during that window they are client money — and the new regime intends to safeguard them.
This is the critical point for the remittance sector. Many operators currently sweep collected funds into a single operating account, fund overseas payouts from working capital, and reconcile later. Under the safeguarding regime, that approach will not be compliant. Client funds in transit must be identifiable, segregated, and protected.
The Proposed PSP Licence Tiers
Treasury's framework defines payment functions and groups them into licence categories under an enhanced AFSL. While the final categories are still being settled, the consultation material describes up to 10 payment functions. The ones most relevant to remittance operators are set out below.
| Payment function | Description | Typical remittance relevance |
|---|---|---|
| Stored-value facilities | Holding customer funds in a balance or wallet | MTOs offering prepaid or wallet balances |
| Payment initiation | Initiating a payment on a customer's instruction | Operators triggering transfers via APIs |
| Money transfer / remittance | Collecting funds and arranging payout to a beneficiary | Core activity of nearly all MTOs |
| Cross-border transfers | International value transfer | International remittance corridors |
| Payment facilitation / aggregation | Routing funds between payers and payees | Aggregators and platform operators |
Each function carries its own conduct, disclosure, and safeguarding obligations. An operator performing multiple functions — for example, holding wallet balances and arranging cross-border payouts — will need authorisation across each relevant category and must safeguard funds across all of them.
Importantly, the framework is designed to be proportionate. A small single-corridor remittance dealer will not face the same prudential capital burden as a systemic stored-value provider. But the core safeguarding principle — protect client money — applies across the board.
How Safeguarding Will Work in Practice
Treasury has drawn heavily on overseas models, particularly the UK's safeguarding rules under the Payment Services Regulations and the EU's Electronic Money Directive. Three protection methods are likely to be available.
Method 1: Segregated Trust Account
The most common approach is to hold all client funds in a designated trust or client money account with an authorised deposit-taking institution (ADI). The account is separate from your operating funds, clearly designated as holding client money, and reconciled daily.
If your business fails, funds in the safeguarding account are quarantined for the benefit of customers — creditors cannot touch them. This requires disciplined daily reconciliation to ensure the balance always matches your outstanding customer obligations.
Method 2: Insurance or Guarantee
Alternatively, you may protect client funds through an insurance policy or bank guarantee of equivalent value, payable to customers if the firm becomes insolvent. This suits operators who cannot easily segregate every dollar but can secure third-party cover.
In practice, insurance-based safeguarding has proven expensive and hard to source in comparable overseas markets, so most MTOs default to the trust account method.
Method 3: Combination
Larger operators may use a hybrid model — segregating the bulk of funds while covering peak or timing mismatches with insurance. Whatever method you choose, you will need documented procedures, regular external audit, and the ability to demonstrate compliance to the regulator on demand.
What This Means for Your Banking Arrangements
Safeguarding intersects directly with the de-banking challenge that has plagued the remittance sector. To safeguard client money, you need an ADI willing to provide a designated client money account — and many banks remain reluctant to service MTOs.
The reforms may cut both ways here. On one hand, a clear safeguarding regime gives banks more comfort that an operator is properly managing client funds, potentially easing access. On the other, banks may impose additional conditions on safeguarding accounts, including enhanced reporting.
You should start conversations with your banking partners early. Confirm whether your current accounts can be re-designated as client money accounts, what fees apply, and whether your bank can provide the daily statements and reconciliation data that safeguarding requires.
If you operate through the Remittance Network Provider (RNP) structure with affiliates, you also need to clarify how safeguarding obligations flow between the network provider and its agents. Funds collected by an agent on the network's behalf are still client money that must be protected.
Timeline: When Does This Take Effect
The PSP licensing reforms are still progressing through consultation and drafting. Treasury released exposure draft legislation and consultation papers across 2023 and 2024, with the framework expected to be legislated and then phased in.
Based on Treasury's published roadmap and the experience of comparable regimes, MTOs should plan around the following indicative sequence:
| Stage | What happens | Indicative status |
|---|---|---|
| Consultation | Treasury publishes papers and exposure drafts | Completed / ongoing |
| Legislation | Parliament passes the enabling framework | Pending |
| Transitional period | Existing providers map to new licence categories | Following legislation |
| Full commencement | Safeguarding and licensing obligations enforced | After transition |
Do not wait for the final commencement date to prepare. The operational changes — segregating accounts, building daily reconciliation, securing banking — take months to implement. Operators who begin now will transition smoothly; those who wait risk a compliance scramble.
How This Interacts With AUSTRAC Obligations
The PSP licensing regime sits on top of, not instead of, your existing AUSTRAC obligations. You will still need to be enrolled and registered as a reporting entity, maintain your AML/CTF program, and file IFTI, TTR, and SMR reports as required.
Safeguarding is a prudential and conduct obligation administered through the AFSL framework and overseen by ASIC and the RBA — distinct from AUSTRAC's financial crime mandate. In practice you will manage two parallel compliance streams:
- AUSTRAC / AML-CTF — preventing money laundering, terrorism financing, and sanctions breaches.
- PSP licensing / safeguarding — protecting client funds and meeting conduct standards.
Many of the underlying records overlap. Strong transaction monitoring and reconciliation systems serve both purposes, so investments in one area can support the other.
Practical Steps to Prepare Now
While the final rules are pending, the direction of travel is clear. Take these steps to position your business ahead of commencement.
- Map your fund flows. Document exactly when you receive client money, where it sits, how long it is held, and when it leaves your control. Identify every account that touches client funds.
- Identify your payment functions. Determine which licence categories your activities fall into — money transfer, cross-border, stored value, or a combination.
- Review banking arrangements. Ask your ADI whether it can provide designated client money accounts and the reconciliation data safeguarding requires.
- Build daily reconciliation capability. Ensure your systems can reconcile safeguarded balances against outstanding customer obligations every business day.
- Separate client money from operating capital. Stop funding payouts from working capital where client funds are involved. Establish disciplined segregation now.
- Budget for new costs. Factor in trust account fees, external audit, additional capital, and potential insurance into your pricing and capital planning.
- Review agent arrangements. If you operate a network, clarify how safeguarding obligations apply to funds collected by agents.
The Cost Impact on Remittance Operators
Safeguarding is not free. The main cost drivers fall into four categories.
| Cost area | What it involves | Impact |
|---|---|---|
| Banking | Designated client money accounts, statements | Account fees, possible higher charges |
| Audit | External verification of safeguarding compliance | Annual audit fees |
| Capital | Holding sufficient capital separate from client funds | Reduced working capital flexibility |
| Systems | Daily reconciliation and reporting tooling | Software or development costs |
For thin-margin operators, these costs matter. Combined with the RBA's removal of card surcharging from 1 October 2026 and rising compliance expectations under the 2026 AML/CTF reforms, the cost base for running an MTO is climbing.
The operators who thrive will treat safeguarding as a trust signal rather than a burden. Demonstrating that you protect client money the way banks do can become a competitive advantage when winning customers and securing banking relationships.
How Australia Compares Internationally
The safeguarding model Treasury is pursuing is well established overseas. In the United Kingdom, payment institutions and e-money firms have safeguarded client funds for over a decade under the Payment Services Regulations, using segregated accounts or insurance. The European Union mandates equivalent protection under its e-money and payment services directives.
The Financial Action Task Force (FATF) — the global standard-setter that shapes Australia's AML/CTF regime — supports robust regulation of money or value transfer services, including consumer protection measures. By introducing safeguarding, Australia closes a gap that international peers addressed years ago.
For MTOs operating across multiple jurisdictions, the alignment is helpful. Safeguarding processes built for the Australian regime will broadly mirror those required in the UK and EU, simplifying multi-market compliance.
Disclaimer
This information is general in nature and does not constitute legal advice. The PSP licensing reforms are still being finalised, and specific obligations may change before commencement. Consult AUSTRAC, ASIC, or a qualified legal professional for advice specific to your situation.
Frequently Asked Questions
Do all remittance operators need to safeguard client funds under the new PSP regime?
If your business holds or passes through client money — which describes nearly every MTO — you will be subject to safeguarding obligations once the regime commences. The exact requirements scale with the volume and duration of funds you hold, with stored-value providers facing the most demanding standards and small pass-through operators facing proportionate obligations.
What is the difference between stored-value and pass-through funds?
Stored-value funds are customer balances held over time in a wallet or account, where the customer loads money and draws it down across multiple transactions. Pass-through funds are money held briefly in transit — collected from a sender and paid out to a beneficiary within a short window. Both are treated as client money requiring protection under Treasury's framework.
How does PSP safeguarding differ from my AUSTRAC obligations?
They are separate compliance streams. AUSTRAC administers anti-money-laundering and counter-terrorism-financing rules under the AML/CTF Act 2006, covering reporting, KYC, and your AML/CTF program. PSP safeguarding is a prudential and conduct obligation under the enhanced AFSL framework, overseen by ASIC and the RBA, focused on protecting client funds. You must comply with both.
When will the PSP licensing reforms take effect?
Treasury has progressed the reforms through consultation and exposure draft legislation across 2023 and 2024, with legislation pending and a transitional period expected before full commencement. No final enforcement date has been confirmed, but operators should prepare now because the operational changes take months to implement.
Can I use my existing bank account to safeguard client funds?
Not in its current form. Safeguarding requires a designated client money or trust account, separate from your operating funds and clearly identified as holding client money, with daily reconciliation. You should ask your ADI whether your existing accounts can be re-designated or whether a new account structure is needed.
Prepare Your Operations Before the Regime Lands
Safeguarding will reshape how MTOs handle money, but the operators who prepare early will turn compliance into a trust advantage. Start by mapping your fund flows and reviewing your AML/CTF program against the 2026 rules using our AML/CTF program builder. Stay ahead of every regulatory change shaping the sector by subscribing to our newsletter.
