25 November 2020

On 2 November 2020, the Payment Services (Amendment) Bill (“Bill”) was moved for first reading in Parliament. In an explanatory brief issued on the same day, the Monetary Authority of Singapore (“MAS”) announced that the Bill seeks to introduce legislative amendments to the Payment Services Act 2019 (“PS Act”) to implement the enhanced international standards adopted by the Financial Action Task Force (“FATF”) in June 2019 which address money laundering and terrorist financing (“ML/TF”) risks posed by virtual asset service providers (“VASPs”) that are not already regulated as financial institutions. MAS also intends to amend the PS Act to mitigate the ML/TF risks arising from certain cross-border business models that have surfaced.

Aside from amendments related to anti-money laundering and countering terrorist financing (“AML/CFT”), MAS proposes to introduce powers to impose measures on digital payment token (“DPT”) service providers, among other miscellaneous amendments to the PS Act.

MAS consulted on the policy changes and draft legislative amendments in December 2019. On 4 November 2020, MAS issued its Response to Feedback Received on Proposed Amendments to the Payment Services Act. MAS reported that respondents were generally supportive of the proposals, with feedback incorporated into the Bill where appropriate.

Set out below is an overview of the key amendments introduced by the Bill.

Background

Currently, the provision of payment services is regulated by MAS under the PS Act, where licensed payment services providers are required to mitigate key risks and concerns relating to ML/TF, loss of money owed to consumers or merchants due to insolvency, fragmentation and limitations to interoperability, and technology and cyber risks.

Enhancing regulatory framework for VASPs

The Bill will expand the definition of “DPT service” in the PS Act to include the following services:

  • Transfer of DPTs 
  • Provision of custodian wallet services for DPTs 
  • Facilitating the exchange of DPTs without possession of moneys or DPTs by the DPT service provider

This expansion of the definition of DPT service aligns Singapore’s regime with the enhanced FATF standards applicable to DPT service providers. MAS notes that VASP activities are inherently more vulnerable to ML/TF risks due to their speed, anonymity and cross-border nature and recognises that these activities carry ML/TF risks and should be regulated for AML/CFT. For example, criminals may exploit entities that carry on a business in Singapore of providing such services to move or layer the proceeds of illicit assets by transferring value in the form of DPTs from one person to another, or to safekeep illicit assets and act as an additional layer or front.

MAS intends to amend the PS Act such that DPT service providers that provide any of the above listed services will be required to be licensed under the PS Act and be subject to MAS’ AML/CFT regulations. The service of dealing in DPTs and facilitating the exchange for DPTs where the DPT service provider comes into possession of moneys or DPTs are currently already regulated under the PS Act.

Mitigating ML/TF risks arising from certain business models

The Bill will expand the definition of cross-border money transfer service to include a service provider that actively facilitates cross-border money transfers between entities in different countries although moneys are not accepted or received in Singapore. A cross-border money transfer service provider which carries on a business in Singapore of providing such services will be required to be licensed and subject to MAS’ AML/CFT regulations.

Empowering MAS to impose measures on DPT service providers

While MAS currently regulates DPT service providers primarily for ML/TF risks, MAS recognises that user adoption of some DPTs may gain traction quickly with the continually evolving DPT sector and development of new DPTs (including stablecoins). The Bill will equip MAS with new powers to implement appropriate measures to mitigate new risks in a timely manner, such as powers to impose:

  • user protection measures on certain DPT service providers to ensure the safekeeping of customer assets held by the DPT service provider, where necessary; and
  • measures on certain DPT service providers where it is in MAS’ view necessary or expedient in the interest of the public or a section of the public, the stability of the financial system in Singapore, or the monetary policy of MAS.

Miscellaneous amendments

The Bill will introduce the following other amendments to the PS Act:

  •  Allow MAS to prescribe additional licensees or classes of licensees in respect of certain payment services that must safeguard customer money 
  • Broaden the scope of domestic money transfer service to include situations where either the payer or the payee is a financial institution 
  • Provide that the general duty to use reasonable care not to provide false information to MAS applies to all persons, whether or not the person is an individual

Reference materials

The following materials are available on the the Parliament website www.parliament.gov.sg and the MAS website www.mas.gov.sg:

 

Allen & Gledhill Regulatory & Compliance 

To assist our clients with compliance matters, our consultancy arm, Allen & Gledhill Regulatory & Compliance, provides a range of services and solutions. Should you have any queries relating to compliance issues arising out of these developments, please contact:

Lawrence Low
+65 6890 7448
lawrence.low@allenandgledhill.com