26 February 2019
The Payment Services Bill (“Bill”), which provides for the licensing and regulation of payment service providers and the oversight of payment systems, was passed in Parliament on 14 January 2019. The Bill 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”).
In his Second Reading Speech, Minister for Education Mr Ong Ye Kung (“Mr Ong”), on behalf of Mr Tharman Shanmugaratnam, Deputy Prime Minister and Minister-in-charge of the Monetary Authority of Singapore (“MAS”), outlined the main features of the Bill and explained the approach underpinning it.
The Bill was the subject of two public consultations by the MAS and Mr Ong noted that it had been well received.
Mr Ong explained that the Bill puts forth a regulatory structure that recognises the growing convergence across payment activities - technology is transforming the world of payments and at the same time, new payment methods give rise to new risks.
The Bill expands the MAS’ regulatory scope to include more types of payment services, such as digital payment token services and merchant acquisition. Mr Ong noted that the Bill includes provisions that level the playing field for banks and non-banks and enhance user protection. MAS will be provided with the flexibility to regulate payment service providers that offer one, two or more parts of the payments value chain as well as to respond quickly to fast changing payment solutions and business models. The risk-based approach adopted in the Bill will enable MAS to impose proportionate regulatory measures on each type of payment service provider, depending on the scale of their activities.
Regulatory frameworks for designation and licensing
The Bill introduces two regulatory frameworks: a designation regime and a licensing regime.
Mr Ong noted in his Second Reading Speech that designating payment systems for financial stability reasons is a power that is already provided for in the PS(O)A, and has been retained in the Bill. The designation regime enables MAS to regulate significant payment systems for financial stability as well as efficiency reasons.
The second framework is a licensing regime to allow MAS to regulate a wide range of payment services in a manner that matches the scope and scale of services provided by each provider, and that can respond flexibly to market developments. The services can be grouped into seven types: account issuance, domestic money transfers, cross-border money transfers, merchant acquisition, e-money issuance, digital payment token dealing and exchanges, and money-changing. Service providers may offer different combinations of these services, and the licensing regime will regulate them according to the risks they pose.
Singapore will be among the first few financial services regulators in the world to introduce a regulatory framework for digital payment token services, or what are commonly understood as cryptocurrency dealing or exchange services. Under the Bill, all providers of digital payment token dealing or exchange services in Singapore will have to meet anti-money laundering and counter financing of terrorism requirements.
Three classes of licences
The Bill provides for three classes of licences - a licensee may be a money-changing licensee, a standard payment institution or a major payment institution:
- Money-changing licensees can provide only money-changing services and will continue to be regulated in largely the same way as they are currently under the MCRBA as the attendant risks have not changed.
- Standard payment institutions may provide any combination of the seven defined payment services, but below transaction flow or e-money float thresholds as set out in the Bill.
- Major payment institutions can go above the thresholds specified in the Bill but will be subject to more regulation as the scale of their operations would pose more risk.
Definition of e-money
The Bill defines e-money to include e-wallets, meaning any monetary value that is held for future payment transfers between individuals or with corporates, rendering e-money issuers with an obligation to protect the value held in major e-wallets for consumers and merchants.
Mitigating key risks in payment services
The Bill includes provisions to mitigate the four key risks that are common across many payment services: loss of customer monies, money laundering and financing of terrorism risks, fragmentation and lack of interoperability across payment solutions, and technology risks including cyber risks. The Bill also gives MAS powers to impose technology risk management requirements, including cyber security risk management requirements, on all licensees. Payment service providers will be required to ensure there is adequate risk governance and implementation of adequate controls, particularly in areas such as user authentication, data loss protection and cyber-attack prevention and detection.