29 November 2018
The Payment Services Bill (“Bill”), introduced in Parliament on 19 November 2018 for its first reading, will streamline payment services under a single legislation by combining the Payment Systems (Oversight) Act (“PS(O)A”) and the Money-Changing and Remittance Businesses Act (“MCRBA”). The Bill provides for the licensing and regulation of payment service providers, the oversight of payment systems, and connected matters. The Bill incorporates, where appropriate, feedback received during the public consultation on the proposed payments regulatory framework which was conducted by the Monetary Authority of Singapore (“MAS”) from 21 November 2017 to 8 January 2018.
The following is a snapshot of the key features of the Bill:
- The Bill introduces two parallel regulatory frameworks - the designation framework for significant payment systems and the licensing framework for payment service providers.
- A payment service provider need only hold one licence but of a class of licence that corresponds to the risk posed by the scale of payment services provided. Three types of licences are stipulated - a money-changing licence, a standard payment institution licence and a major payment institution licence.
- An applicant for a standard payment institution licence and a major payment institution licence must be a company (incorporated in Singapore or overseas); have a permanent place of business in Singapore or a registered office in Singapore; and have at least one executive director who is a Singapore citizen or Singapore Permanent Resident, or a person belonging to a class of persons prescribed by MAS.
Scope of Payment Services Bill
The Bill seeks to expand the scope of regulated payment services, in response to new developments in payment services and the various risks they pose. MAS will be empowered under the Bill’s proposed framework to regulate payment services in light of the key risks and concerns, such as money-laundering and terrorism financing (“ML/TF”), loss of funds owed to consumers or merchants due to insolvency, fragmentation and limitations to interoperability, and technology and cyber risks.
MAS will have general powers over all regulated entities, including powers to conduct inspections and investigations, and emergency powers. The Bill will require regulated entities to comply with general requirements relating to corporate governance, capital adequacy and business conduct.
The Bill introduces two parallel regulatory frameworks - the designation framework for significant payment systems (“designation framework”) and the licensing framework for payment service providers (“licensing framework”). Some key points of each are set out below.
Overview of two frameworks
The designation framework will enable MAS to regulate systemically important payment systems for financial stability as well as efficiency reasons by designating such systems as designated payment systems under the Bill. MAS explained, in its Response to Feedback received during the public consultation, that the key considerations for designating a payment system will include whether its disruption could pose systemic disruption to the financial system, affect public confidence in payment systems or the financial system in Singapore, pose efficiency or competition concerns, or whether it is in the interests of the public to do so. MAS will take the relevant entity’s views into consideration when determining if designation is necessary.
The licensing framework sets out a licensing regime that will enable MAS to regulate the provision of payment services. The Bill will regulate seven payment services and prohibit the carrying on of a business which provides any type of payment service in Singapore unless the provider has a licence in respect of the payment service that is provided. A licensee pays a prescribed annual fee to MAS. Certain persons, such as licensed banks, are exempted from the requirement to have in force a licence to carry on a business of providing any payment service.
A payment service provider need only hold one licence but of a class of licence that corresponds to the risk posed by the scale of payment services provided. Three types of licences are stipulated - a money-changing licence, a standard payment institution licence and a major payment institution licence. The introduction of specific licences will allow MAS to apply risk appropriate regulations to the specific regulated activities that the licensee conducts.
A licensee is prohibited from carrying on a business of providing certain payment services if the total values involved (of payment transactions or e-money, for instance) involved exceed certain thresholds, unless the licensee holds a major payment institution licence. An entity must hold a major payment institution licence if it intends to provide payment services in excess of specified thresholds. These thresholds are as follows: with regard to (1) any licensable activity (excluding money-changing services and any account issuance service where each payment account stores e-money (“exclusion”)) where the average, over a calendar year, of the total value of all payment transactions that are accepted, processed or executed by the entity in one month exceeds S$3 million, or (2) two or more licensable activities, with the exception of those stated in the exclusion, where the average, over a calendar year, of the total value of all payment transactions that are accepted, processed or executed by the entity in one month exceeds S$6 million.
An applicant for a standard payment institution licence and a major payment institution licence will have to fulfil, inter alia, the following criteria:
- The applicant must be a company (incorporated in Singapore or overseas);
- The applicant must have a permanent place of business in Singapore or a registered office in Singapore; and
- The applicant must have at least one executive director who is a Singapore citizen or Singapore Permanent Resident, or a person belonging to a class of persons prescribed by MAS.
The Bill empowers MAS to require a licensee to provide any information relating to the licensee’s business as well as provide periodic reports or returns relating to the licensee’s business.
To differentiate payment services licensees from deposit-taking institutions, the Bill will:
- prohibit licensees carrying on a business of providing an e-money issuance service from lending any customer money, or using any customer money, or any interest earned on any customer money, to finance wholly or to any material extent any activity of any business carried on by the licensee; and
- prohibit licensees from offering cash withdrawals in Singapore dollars, from payment accounts storing e-money that are held by Singapore residents.
Provisions to mitigate risk
The Bill mandates that major payment institutions must safeguard customer monies through any of the following means:
- An undertaking by any bank in Singapore or prescribed financial institution to be fully liable to the customer for such monies;
- A guarantee by any bank in Singapore or prescribed financial institution;
- A deposit in a trust account in such manner as may be prescribed by MAS; or
- Safeguarding in such other manner as may be prescribed by MAS.
The Bill will provide MAS with the powers to:
- mandate that a designated payment system operator or major payment institution allow third parties to access any payment system it operates, and the access regime imposed must be fair and not discriminatory;
- mandate any major payment institution’s participation in a common platform to achieve interoperability of payment accounts including wallets with pervasive customer reach; and
- mandate that any major payment institution adopt a common standard to make widely used payment acceptance methods interoperable.
The Bill will also give MAS powers to impose technology risk and cyber security risk management requirements on all licensees. Licensees that provide payment services which carry ML/TF risks will also need to comply with ML/TF risk mitigating measures that MAS will impose under the Monetary Authority of Singapore Act.
As the PS(O)A and the MCRBA will be repealed at the commencement of the Bill and new payment services will be introduced, the Bill provides transitional arrangements for existing regulated entities as well as powers to make transitional arrangements for entities currently providing the new payment services but which are not regulated. Transitional arrangements of between six and 12 months will be provided to facilitate a smooth transition of these entities into the new regulatory framework, and allow entities sufficient lead time to comply with new requirements.
- Payment Services Bill
- Explanatory Brief on the Payment Services Bill
- MAS response to feedback received from Proposed Payment Services Bill
- MAS press release on “New regulatory framework to enhance payment services in Singapore”