Don’t be left in the dark on merchant services providers

This article was current at the time of publication.

Rapid advances in technology have made paying for goods and services easier than ever.

At the touch of a finger, a wave of a mobile phone, or tap of a credit or debit card, consumers can now purchase just about anything online from anywhere at any time.

However, has the regulatory architecture of the Australian payments system kept pace with changes in technology?

This issue was behind a formal review of the payments system by the federal government in late 2020.

Among other things, its final report – released in August this year – recommends stronger regulatory oversight of the sector.

One final recommendation is that regulators work with the industry to coordinate the development of a business education program regarding payments to ensure businesses understand their options.

Merchant services providers (MSPs) are central players in the payments system. 

MSPs are behind the platforms businesses use daily to accept and process customer payments. Generally, they must hold an Australian financial services licence and are regulated by the Reserve Bank of Australia and Australian Securities and Investments Commission.

Expert legal advice for practitioners

It’s in the regulatory space around the increasingly complex payments system that accountants – particularly practitioners without a financial advice licence – need to tread carefully.

Because it mostly comes under the umbrella of financial product advice, unlicensed practitioners should ideally avoid giving any form of advice to clients about choosing a services company or the forms of payment that would best suit their business.

“Subject to exemptions, a non-cash payment facility will be regulated as a financial product under the Corporations Act 2001 [the Act],” says Holley Nethercote Lawyers Special Counsel, Zoe Higgins.

“Within the same offering there may also be deposit and other types of financial products, so there is definite potential for this type of offering to be a financial product or more than one type of financial product.”

Higgins notes that practitioners looking to provide advice might have been made aware of a specific MSP their clients may want to know more about.

Product and advice exemptions

“There are some exemptions under the Act where, if an exemption applies to the product offering, it won’t be a financial product,” she says.

“That would mean advice about the offering is not regulated financial advice. But it’s quite a technical analysis for an unlicensed person to figure out whether an exemption that applies to product features applies to the offering.

“I would probably recommend not trying to rely on exemptions that are about the features of the product and instead – if it’s helpful – rely on exemptions that apply to advice itself.”

Higgins says that assuming the offering in question is regulated as a financial product, a practitioner’s advice wouldn’t be considered regulated advice if an advice exemption applied.

For example, passing on or publishing a prepared document about an MSP’s offering.

“[(It) ] might contain financial product advice, it might have been prepared by the merchant services provider themselves, but the unlicensed person can pass that on as long as they have no control over the content of the document,” Higgins says. 

An unlicensed practitioner can also give what’s known as a “mere referral”. That is, referring clients to a licensed adviser. 

However, as with most exemptions in the advice process, there are some conditions for using the mere referral exemption. These include the need to disclose any benefits attributable to the referral.  

Stick to the facts

“The easiest thing to do which doesn’t require you to think about exemptions or how things fit into the Act is just to give factual information,” Higgins says.

“Don’t give any opinions or make any recommendations – just the facts. That’s not a regulated financial service.

“Giving factual information can be quite helpful if unlicensed accountants want to answer questions their clients have about terms and conditions or the cost of an offering.”

Unlicensed practitioners can also respond to clients asking about “least cost routing” [the lowest cost option], depending on how they frame their response.

“It’s fine if the client has a question about the features or benefits of a particular offering and the accountant can ascertain the facts from the information they have and pass (them) onto the client,” Higgins says.

“The facts can be about anything you like as long as you’re not giving a recommendation or statement of opinion.”

Given the complexities in the area, the best option is to steer away from giving any advice at all.