What You Need to Know About Singapore’s new Payment Services Act

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Southeast Asia’s digital market is forecasted to increase to US$10 billion by 2021, and reach US$300 billion by 2025. As the financial epicenter and fintech hub of Asia, Singapore is poised to reap the benefits of Asia’s digital market boom. The government has named the “digital economy” as one of its Smart Nation Goals and has set aside funding in order to provide an open 5G ecosystem, as well as additional funding for digital technologies. 

Unfortunately, along with the rise of the digital economy, comes greater risks of money laundering activities and terrorist funding. Globally, criminals launder an estimated $2-4 trillion each year, while terrorist groups are using new payment methods, such as cryptocurrencies to fund their activities. 

In response to the evolving payments landscape, the Singaporean government enacted the Payment Services Act (PS Act) in order to strengthen consumer protection and promote confidence among its citizens in the use of e-payments. The PS Act which went into effect on 28 January 2020, will repeal some of the country’s previous monetary acts and combines some of the previous provisions with new requirements to include digital tokens, cross-border money transfers, and e-money issuance. The Monetary Authority of Singapore (MAS) will oversee the regulatory regime which will now be able to regulate cryptocurrency payments. 

The PS Act further bolsters Singapore’s credentials as a blockchain and fintech friendly jurisdiction. The Act is expected to boost the number of crypto and blockchain firms operating in Singapore as their activities are now supported by a robust regime that is responsive and encouraging to innovation in the payment services industry. Binance, one of the world’s largest crypto exchanges, has already announced that they have applied for a license, with Luno and Liquid also expressing their intentions to apply. 

We take a closer look at the Payment Services Act.

Key Takeaways

  • New licensing regime for payment services effective from 28 January 2020.
  • Seven categories of payment services that require one of three types of licenses under the PS Act. 
  • Introduces new regulations for cryptocurrencies. 
  • PS Act imposes financial and ongoing conduct obligations.
  • 27 February 2020 filing deadline for Temporary Payment Services License Exemptions.
Singapore Payment Services Act

The PS Act adopts an activity-based licensing framework that focuses on seven categories of payment activities, that the MAS sees and crucial to financial stability. The categories expand the regulatory reach of the MAS to include new types of payment services, such as account issuance, merchant acquisition, and digital payment token services. The seven categories of payment activities regulated by the Act are summarised below. 

Seven Types of Payment Services

1. Account issuance services

Services involving the issuing or the operation of a payment account. This could include e-wallets, non-bank issued credit cards and stored value accounts. 

2. Domestic money transfer service

Services providing the transfer of funds within Singapore. For example payment kiosks and payment gateway services.

3. Cross border money transfer service

Services providing the transfer and remittance of funds in and out of Singapore. 

4. Merchant acquisition service

Services that process transactions on behalf of a merchant. This includes online payment gateways or the provision of point of sale terminals. 

5. E-money issuance service

Services that issue e-money to users for payment or transfer. For example, e-money stored in e-wallets.

6. Digital payment token dealing and exchange

Services that provide for the buying or selling of digital tokens or platforms that facilitate the exchange of digital tokens. For example cryptocurrency exchanges. 

7. Money changing service

Services providing the sale and purchase of foreign currency notes in Singapore. For example money changers.

Services not regulated by the Payment Services Act

Loyalty programs offered by retail merchants and limited purpose virtual currency such as in-game credits are deliberately excluded from the scope of the PS Act.  Given their limited use and non-monetary nature, these services are generally low risk to the public. 

Three Types of Licenses

A business that is involved in one or more of the above payment services, will need to hold a license. There are three types of licenses under the PS Act, explained below. 

Singapore Payment License

1. Money Changing License

This license is required for businesses that only provide money changing services. This license essentially remains the same as it was under the previous regulations and will only be granted to applicants with a permanent place of business or registered office in Singapore. 

2. Standard Payment Institution License

This license applies to businesses that engage in any ted above, but at a lower transaction and e-money float thresholds than a Major Payment Institution License. 

The current thresholds: 

  • One payment service – Average monthly transactions of up to S$3 million per calendar year.
  • Two or more payment services – Average monthly transactions of up to S$6 million per calendar year. 
  • E-money issuance service –  up to a daily average of S$5 million per calendar year.

Standard Payment Licenses will only be distributed to companies incorporated in Singapore or overseas with at least one executive director a Singaporean citizen, permanent resident or of an approved category by the MAS. The Applicants are required to have a permanent place of business or registered office in Singapore and meet the additional financial and operational requirements by the MAS. 

3. Major Payment Institution License

This license imposes a more comprehensive regulatory regime and applies to businesses that engage in any of the seven services listed and exceed the above thresholds. 

Like the Standard License, the Major Payment Institution License will only be distributed to companies incorporated in Singapore or overseas with at least one executive director a Singaporean citizen, permanent resident or of an approved category by the MAS. The Applicants are required to have a permanent place of business or registered office in Singapore and meet the additional financial and operational requirements by the MAS. 

Compliance Obligations under the Payment Services Act

The PS Act imposes financial requirements and a number of ongoing conduct obligations. Hefty penalties are in place for non-compliance. We discuss these below. 

Financial Requirements

  • Applicants will need to satisfy the financial requirements provided by the Act. 
  • Money Changing License – currently no minimum base capital requirement
  • Standard Payment Institution License – base capital of not less than S$100,000.
  • Major Payment Institution License – base capital of not less than S$250,000 and additional requirement to maintain a security deposit of S$100,000 where the average monthly transactions do not exceed S$6 million or S$200,000 for other cases.  

Business Conduct Requirements

Licensees are also obliged to comply with MAS notices and guidelines, along with a number of conduct requirements. We summarise the ongoing business conduct requirements below. 

Anti-Money Laundering & Combating the Financing of Terrorism Requirements

All licensees are required to meet measures that prevent money laundering and terrorist funding activities, including:

  • A risk-based approach to simplified customer due diligence — making sure they know who they’re working with, especially in high-risk situations.
  • Performance of necessary risk mitigation measures when providing correspondent account services to another financial institution or when engaging another financial institution for correspondent services, such as ensuring that the other financial institution has measures in place to prevent money laundering and terrorist funding that are adequate and effective.
  • Monitoring the availability of information and freezing or prohibiting transactions among designated people and entities.
  • Collection of customer-specific information, including the full name, unique identification number such as passport number, residential or business address, date of birth or date of incorporation, nationality or place of incorporation, and additional information as required.

Some businesses may meet low-risk criteria that exempts them from taking anti-laundering or counter-terrorism measures. The low-risk criteria they must meet are as follows:

  • Account issuance services may be exempt if they do not provide physical cash for withdrawal; do not allow physical cash refunds of more than S$100, and do not have e-wallet capacity.
  • Domestic money transfer services may be exempt if they only allow the user to perform payment for goods if the payment comes from an identifiable source; payment for goods if the transaction is less than S$20,000, or payment is funded from an identifiable source and the payment is less than S$20,000.
  • Cross-border money transfer services may be exempt if the user is only allowed to pay for services or goods if the payment is from an identifiable source.

Fit and Proper

All licensees must ensure that its senior managers, shareholders and employees meet the MAS criteria for ‘fit and proper’, in that they are competent, honest and be of sound financial standing. 

Technology and Risk Management

All license holders are required to have appropriate policies in place that mitigate technology risks and comply with the MAS’ Technology Risk Management Guidelines and Notice on Cyber Hygiene. Online payment service providers are required to have conducted risk management tests and independent valuation of its proposed financial services prior to obtaining a license. 

Disclosures and Communications

Licensees must make accurate disclosures to customers or potential customers about the scope of its license. The required disclosures are contained in the MAS’ Notice on Disclosures and Communications. 

Annual Audit 

Annual audit reports are required to be filed with the MAS in accordance with their timelines. The MAS are also able to conduct inspections and investigations.

Notification of Changes

License holders are required to obtain pre-approval from the MAS for the appointment of new CEOs, directors, and partners while changes made to the entity and shareholders are required to be notified to the MAS within 14 days of the change.

Registration Deadlines

The PS Act is effective from 28 January 2020. All entities that provide payment services after this date must have the appropriate license or an exemption to hold a license. 

To foster a smooth transition to the new regime, the PS Act offers companies providing eligible payment services prior to the PS Act a temporary license exemption. The exemption is to allow entities to continue to provide their services without interruption while they apply for a new license. To avail the exemption, entities will need to notify the MAS by 27 February 2020. 

Payment services eligible for the exemption include 

  • Account issuance services 
  • Domestic money transfer services
  • Cross-border money transfer services – limited to entities that only provide inbound transfers.
  • Merchant acquisition services 
  • E-money issuance services – limited to companies with a total e-money float of less than S$30 million.
  • Digital payment token services 

If a company doesn’t receive an exemption, it will need to stop providing its payment services until it obtains the applicable license.

The length of the exemption period for digital payment tokens is 6 months from 28 January 2020. For all other eligible payments, the exemption period is 12 months from 28 January 2020. So long as an entity applies for a license within the exemption period, they will be able to continue providing their payment service until the application is approved or refused by the MAS. 

How we can help.

Are you a payment service provider in Singapore, or maybe you are a fintech company planning on getting started? Get in touch with our team so we can guide you through the payment services regulation. We’d be happy to discuss everything there is to know about the new Payment Services Act and licensing matters. Contact our office on [email protected] or +852 3905 3618.