On 8 January 2018, the Monetary Authority of Singapore (MAS) concluded its second public consultation on the proposed Payment Services Bill. The Bill represents MAS’ proposal to enact a new payment legislation—the Payment Services Act (PSA)—to unify the regulation of payment services under a single legislation and to enhance the scope of regulated activities to take into account developments in payment services.
The existing legislative framework for payment services in Singapore is currently contained in two separate pieces of legislation—the Payment Systems (Oversight) Act (Chapter 222A of Singapore) (PSOA) and the Money-Changing and Remittance Business Act (Chapter 187 of Singapore) (MCRBA), enacted in 2006 and 1979, respectively.
The emergence of new technologies, including new payment methods, services and cryptocurrencies, pose many risks and challenges. These new technologies and innovative payment solutions are unlikely to fall within the scope of the existing regulatory framework. However, there are increasing concerns over risks in areas such as money laundering, terrorism financing, protection of customer’s funds and cybersecurity.
Summary of Key Proposals
Unified Payment Legislation – PSA
The Bill proposes to consolidate and replace the PSOA and MCRBA with the PSA. The PSA will regulate both traditional (i.e. cash, remittance and money-changing) and innovative (i.e. e-money, e-wallet and virtual currencies) payment services and activities.
Two Parallel Regulatory Frameworks – Licensing and Designation Regimes
Two parallel regulatory frameworks are proposed for retail payment services (i.e. payments by customers to merchants) and interbank payment services.
Retail Payment Services
Any entity that intends to provide retail payment services in Singapore will require a licence (or be exempted from holding a licence). To streamline the process, a licensee will only require a single licence to conduct any or all of the regulated payment services set out in the PSA.
The following payment services will be regulated under the PSA:
- Providing account issuance services (including stored valued facilities and e-wallets)
- Providing domestic money transfer services
- Providing cross-border money transfer services (both in-bound and out-bound)
- Providing merchant acquisition services
- Issuing e-money (to allow the user to pay merchants or transfer e-money to another individual)
- Providing virtual currency services (buying or selling virtual currency, or providing a platform to allow persons to exchange virtual currency in Singapore)
- Providing money-changing services (exchange of physical currency notes)
Interbank Payment Services
This framework focuses on payment systems that face financial stability risks due to disruption and/or which would affect public confidence in the financial system. This regime is largely retained from the existing PSOA regime, but the expansion of designation criteria will allow MAS to designate payment systems for competition or efficiency reasons.
Introduction of “e-money” and “virtual currency” definitions
MAS is proposing to define “e-money” and “virtual currency.” The distinguishing factor is that e-money is denominated in fiat currency while virtual currency, which includes cryptocurrencies such as Bitcoin and Ether, is not. Virtual currency is defined as any digital representation of value that is accepted by the public as a medium of exchange, to pay for goods and services, or discharge a debt. It is however still unclear whether monetary value that is not denominated in any fiat currency but is pegged to fiat currency should also be considered e-money. We expect MAS to take the view that this is indeed the case.
Whether an activity will require licensing will depend on what payment services are provided in relation to the e-money or virtual currency, e.g. licensing will be required if an entity issues e-money to persons in Singapore, or if they deal in or facilitate the exchange of virtual currencies for “real currencies.” However, the mere use of virtual currency as a means of payment will not require licensing.
Impact on the Industry
The PSA represents a significant step in the right direction, as a consolidated framework provides greater legal certainty to various market players.
While it is not certain if and when the PSA will be passed and implemented, it may be reasonably expected that the PSA will eventually be passed substantially in its draft form and come into effect in or around 2019.
The introduction of the new licensing regime will have an impact on a wider range of entities providing payment services who are not currently regulated but will clearly be regulated. There will also be clear rules on whether certain cryptocurrencies are treated as fiat currency for the purposes of money-changing and remittance regulations.
In any case, MAS is proposing a six-month grace period for newly regulated entities to submit their licence application, giving the industry more time to adjust to the new framework when the PSA comes into effect. Nonetheless, entities which were not previously regulated under the existing legislative regime should review their existing and proposed business activities and consider whether they will be required to obtain a licence when the PSA comes into effect.
Finally, it is important to understand that in the context of cryptocurrencies, this proposed regulatory framework is in addition to other rules and regulations that may apply under the Securities and Futures Act (Chapter 198 of Singapore) (SFA), which will be relevant in the event tokens or cryptocurrencies utilised in connection with the provision of payment services are deemed to be “securities” or “futures contracts” under the SFA.