Significance: new Payment Services Act (“PSA“) by the Monetary Authority of Singapore (“MAS”) was passed by Parliament on 14 January 2019. This new law will replace the Payment Systems (Oversight) Act (Cap. 222A) (“PSOA”) and the Money-Changing and Remittance Businesses Act (Cap. 187) (“MCRBA”).
The proposed new law will apply to:-
a) account issuance service;
b) domestic money transfer service;
c) cross-border money transfer service;
d) merchant acquisition services;
e) e-money issuance service;
f) digital payment token service (cryptocurrencies or virtual currencies);
g) money-changing service.
Account Issuance Service
This refers to the service of issuing accounts used to initiate or execute payment transactions or service relating to operating a payment account. This may include payment transactions involving e-wallets or non-bank issued credit card.
Money Transfer Service
What was previously regulated as remittance businesses is now referred to as money transfer services. This includes both domestic and cross-border.
The way that the term “cross-border money transfer service” is defined, it would include any service of accepting money in Singapore to transfer outside Singapore, and any service of receiving money outside Singapore for any person in Singapore.
This appears to be regardless of the mode of operation, i.e. whether the traditional remittance business model, or as is in vogue now, parallel money transfers between bank accounts in two countries.
Merchant Acquisition Service
This refers to accepting and processing payment transactions for merchants in Singapore (or under a contract entered into in Singapore) which results in a transfer of money to the merchant, whether the service provider holds or possesses the money. This may include the operation of online payment gateways/systems, and the operation or provision of point-of-sale (POS) terminals.
ICOs and Digital Token Exchanges
My tentative view based on reading the PSA, read together with the revised MAS Guide to Digital Token Offerings dated 30 November 2018 (“DTO Guide“), is that this law will require the following categories of persons to be licensed under the new law:-
a. Operators of cryptocurrency or digital payment token exchanges (whether they deal in security tokens or not).
b. Providers of services relating to the buying or selling of digital payment tokens, e.g. a service of teaching people how to buy digital tokens and set up crypto digital wallets, service of assisting people in trading their digital payment tokens.
This is based on a reading of section 5 of the PSA and the First Schedule. People who provide:
(a) the service of “dealing in” digital payment tokens; or
(b) the service of facilitating the exchange of digital payment tokens (whether security or non-security tokens);
must obtain a payment services licence under the PSA.
The PSA and the DTO Guide state that if a digital token is, or is intended to be, a medium of exchange accepted by the public, or a section of the public, as payment for goods or services or for the discharge of a debt, then it is a “digital payment token” as defined in the PSA: see also Case Study 1 and 9.
This suggests that if a utility token is used purely for payment of fees to a particular service provider who is the token issuer, then such a token will not be deemed a digital payment token. But if a token is intended to be used as a virtual currency on a platform for payment of goods and services, then it is likely a digital payment token as defined in the PSA.
However, merely accepting a digital token as a means of payment for the sale of goods or services or using a digital token to pay for goods or services will not constitute “dealing in” digital payment tokens, and thus will not be required to be licensed. In other words, if you are a merchant on a platform that accepts digital tokens for payment, you need not be licensed under the PSA.
The licensing requirements also do not apply to “limited purpose digital payment tokens”, which are non-monetary customer loyalty or reward points, in-game assets, or other similar digital representation of value that cannot be returned to its issuer, transferred or sold in exchange for money, and can only be used for exchange for goods or services or payment; or exchange for virtual things in an online game.
E-Money Issuance Service and Stored Value Facility
Some of what was previously regulated as stored value facility (“SVF“) under the PSOA would now be referred to as e-money issuance services.
E-money differs from digital payment tokens in that e-money is expressly denominated in or pegged to a fiat currency. Digital payment tokens are not. E-money includes e-wallets, i.e. monetary value that is held for future payments to another person or user.
If an operator issues e-money which a user purchases, the user can then use the e-money to pay for goods and services or transfer the e-money to another person. Whoever has such e-money can claim against the e-money issuer for the value it represents.
The PSA carves out an exception for e-money that is for a “limited purpose”, such as certain types of pre-paid cards, the purchase of limited goods and/or services, and particular merchant loyalty programmes.
This is the service of buying or selling of foreign currency notes in Singapore. This would include money-changers dealing in physical foreign currency notes.
Money-changing licences allow licensee to only provide money changing services, and the applicable regulations are largely similarly to those previously under the Money-Changing and Remittance Businesses Act.
There will be 3 classes of licences under the PSA. At any point in time, the payment service provider need only hold 1 licence but of a class of licence that corresponds to the risk posed by the scale of payment services provided. A payment service provider may apply to be:-
(A) a money-changing licensee;
(B) a standard payment institution; or
(C) a major payment institution.
Money-changing licensees can conduct only money-changing services. Standard payment institutions may conduct any combination of regulated activities that are below specified thresholds. Both will be regulated primarily for anti-money laundering (AML) and counter-terrorism financing (CTF) risks.
Only major payment institutions may carry out payment services above specified thresholds, and will be regulated more comprehensively. These thresholds are:-
a. Accepting, processing, or executing a monthly average of payment transactions above $3 million in a calendar year for any activity (other than an account issuance service where each payment account stores e-money), or above $6 million for two or more activities activity (other than an account issuance service where each payment account stores e-money); or
b. Holding an average daily e-money float above $5 million in a calendar year.
To differentiate payment services licensees from deposit-taking institutions, the PSA will:
(a) 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
(b) prohibit licensees from offering cash withdrawals in Singapore dollars, from payment accounts storing e-money that are held by Singapore residents.
An applicant for a payment services licence (except for a money-changing licence) will have to fulfil the following criteria:
(a) the applicant must be a company (incorporated in Singapore or overseas);
(b) the applicant must have a permanent place of business in Singapore or a registered office in Singapore; and
(c) 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.
It is likely that MAS will also impose technology risk and cyber security risk management requirements on all licensees. Licensees that provide payment services which carry AML/CTF risks will also need to comply with AML/CTF risk mitigating measures.