Background
On 21 November 2017, the Monetary Authority of Singapore (MAS) issued a consultation paper on the Proposed Payment Services Bill (Consultation Paper). This follows the consultation paper issued by the MAS on 25 August 2016 regarding the Proposed Activity-based Payments Framework and Establishment of a National Payments Council, which proposed an activity-based regulatory framework to regulate entities operating within the payments ecosystem.
The proposed Payment Services Bill follows through on the activity-based approach proposed in the consultation paper of 2016, and seeks to create a new payments legislation to:
i. Streamline payment services under a single legislation by combining the Payment Systems (Oversight) Act (Cap. 222A) (PSOA) and the Money-Changing and Remittance Businesses Act (Cap. 187) (MCRBA);
ii. Enhance the scope of regulated activities to take into account developments in payment services; and
iii. Calibrate regulations according to the risks the activities posed by adopting a modular regulatory regime.
Proposed Regulatory Framework
The Payment Services Bill will comprise two parallel regulatory frameworks:
i. First, a licensing regime that regulates retail payment activities facing consumers and merchants. Any entity that intends to provide retail payment services in Singapore will need to hold a licence (or be exempted from holding a licence).
ii. Second, a designation regime that regulates payment systems whose disruption would pose financial stability risks or impact confidence in the financial system. Such systems are likely to be inter-bank payment systems such as FAST, GIRO, and MEPS+. The designation regime will be expanded to also allow the MAS to designate payment systems for competition or efficiency reasons.
A. Licensing regime
The licensing regime will regulate the following activities that either (a) face customers or merchants; or (b) process funds or acquire transactions, with a direct payments nexus. Therefore:
i. Service providers that process only data (e.g. payment instructions) and not funds will be treated as outsourcing services. Hence, providers of payment instrument aggregation services and data communications platforms will not require licensing under the Payment Services Bill.
ii. Services provided exclusively to other payment service providers and financial institutions such as banks fall outside the ambit of retail services. However, the payment systems through which these services are provided may be designated for regulation if they pose financial stability risks. Examples of such important payment systems are infrastructure such as FAST and MEPS+.
The scope of activities requiring licensing under the Payment Services Bill is set out below.
Entities that provide payment services which are related and incidental to other businesses which they carry on must also obtain a licence. This is unless the entity has been exempted from holding a licence to conduct that payment activity, or if MAS has specifically excluded the payment activity from the regulatory ambit of the Payment Services Bill.
It is proposed that there will be a single licence structure under the licensing regime, with licensees offering retail payment activities to be grouped into three main licence classes, namely:
B. Designation regime
Currently, the MAS has powers to designate any payment system for regulation under the PSOA. This will be retained, as the MAS views that the reasons for requiring powers to designate payment systems that might not fall under the licensing criteria but have a financial stability impact are still valid.
To this end, the current designation criteria will be expanded to allow the MAS to designate payment systems to be regulated for competition reasons.
C. Excluded activities
The MAS has indicated that there are payment activities that do not pose sufficient risk to warrant regulation under the licensing regime. These include limited purpose e-money services, limited purpose virtual currency services and payment activities carried out by regulated financial institutions that are incidental to or necessary for the regulated services these financial institutions carry out.
D. Class exemption
The MAS has indicated that it is prepared to consider granting class exemptions to entities that fall within the scope of Standard Payment Institutions but do not pose sufficient ML/TF risks. Such class exemptions will be prescribed as regulations.
Risk Mitigation Framework
AML/CFT measures will apply to all three classes of licensees (Money-Changing licensees, Standard Payment Institutions licensees and Major Payment Institutions licensees), unless the licensee confines its business model to low risk transactions.
The remaining risk mitigating measures will apply only to Major Payment Institutions licencees.
The specific risk mitigation measures are further detailed in the Consultation Paper.
Other MAS Regulatory Controls
Licensees will be subject to the general requirements in the Payment Services Bill and the requirements imposed under the MAS’ general powers:
i. Licensing and business conduct requirements. These are the baseline requirements that all licensed entities have to comply with. The standard requirements for Money-Changing Licensees will be retained from the current MCRBA regime. Other licensees will be required to fulfill 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 if the business is carried on without a permanent place of business, a registered office in Singapore. An applicant must also keep at the permanent place of business or registered office, as the case may be, books of all its transactions in relation to any payment service the applicant provides.
c. The applicant must have at least one Singapore citizen or Singapore permanent resident executive director.
ii. Capital requirements. All licensees (except Money-Changing Licensees) will be required to hold a minimum paid up capital on an ongoing basis for operational reasons, to ensure that they have sufficient capital to operate and manage the risks of a payment service. Major Payment Institutions will also need to comply with security deposit requirements. The proposed capital requirement is SGD 100,000 (or higher as prescribed), while the security deposit requirement is SGD 100,000 (or higher as prescribed).
iii. General powers. There are also general powers under the Payment Services Bill that are common in MAS-administered legislation such as inspection powers, powers to issue regulations and directions, and penal powers relating to offences. The general powers under the Bill will apply to designated entities as is the case in the current PSOA.
Transitional Arrangements
Operators and settlement institutions of designated payment systems and approved holders of SVF under the PSOA, and remittance and money changing business licence holders under the MCRBA are required to comply with the regulations when the new Payment Services Act commences. To provide sufficient lead time to these entities, MAS proposes to commence the new Bill at least 6 months after the Bill is passed in Parliament. Widely accepted SVFs holders and remittance licence holders will be deemed Major Payment Institutions under the Bill and do not need to separately apply for a payment services licence. They have six months from the date of commencement of the Bill to inform MAS of the specific activities that they are conducting. Money changing business licence holders will be deemed to be Money Changing licensees under the new Bill.
Entities that are currently not licensed under the MCRBA or approved to hold an SVF under the PSOA will be given a period of six months, from the commencement of the Bill to submit their applications for licence under the Bill. These entities may continue to provide payment services until their licence applications are approved or rejected by the MAS.
Implementation Timeline
The MAS invites comments from financial institutions, the broader payments industry, businesses and other interested parties on the proposed Payment Services Bill and its proposals in the Consultation Paper.
The consultation period ends on 8 January 2018.
