November was indeed a very busy month in Singapore for the Fintech industry. Not only did it play host to what may have been the world's largest Fintech festival yet, its central bank, the Monetary Authority of Singapore ("MAS") also made further inroads into the regulatory space as it issued guidance on digital token offerings ("DTO Guidelines") as well as launched the second consultation on the new regulatory framework for payment services ("Proposed Payment Services Bill"). This paper will not dwell on the success of the week-long Fintech festival which brought together many industry players from far and wide but would instead focus on the DTO Guidelines and the Proposed Payment Services Bill.
Following from an earlier clarification in early August 2017 (the "MAS August Clarification"), the MAS provided more specific guidance on the application of securities laws that it administered in relation to offers or issues of digital tokens in Singapore. Previously in the MAS August Clarification, the MAS made it clear that if a digital token constitutes a product regulated under the securities laws administered by the MAS, the offer or issue of such digital tokens would have to comply with the applicable securities laws. This position is very much in line with several other jurisdictions such as the USA and Australia which also recently issued similar clarifications. While the DTO Guidelines may not have any force of law, it nevertheless gives us a very explicit understanding of what the MAS is looking out for from a regulatory angle when having to deal with cases involving the offering or issuing of digital tokens.
The DTO Guidelines set out how the MAS would expect the application of securities laws on offers and issues of digital tokens in Singapore, especially in situations whereby:
(i) such digital tokens fall within the definition of "capital markets products" under the Securities and Futures Act (Cap. 289) ("SFA");
(ii) the offers of digital tokens may constitute securities or units in a collective investment scheme of CIS;
(iii) intermediaries facilitate the offers of issues of digital tokens; and
(iv) there is an extra-territorial component involved in relation to the offering or issuing of the digital tokens.
The MAS also took the opportunity in the DTO Guidelines to reiterate their ongoing concerns relating to money laundering and the financing of terrorism in the context of the offering and issuing of digital tokens. It stressed that beyond the relevant MAS regulations and subsidiary legislation relating to the prevention of money laundering and countering of terrorism financing, there are also other legislation in Singapore that may apply even in cases where the offering or issuing of digital tokens is outside MAS' regulatory purview. Such legislation include, for example, section 39 of the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (Cap. 65A) which imposes a general obligation on anyone to report suspicious transactions to the Singapore Police Force.
One aspect of the DTO Guidelines which was particularly helpful was the provision of 6 case studies, presumably based on situations that the MAS may have come across before. These 6 case studies provided specific details and were illustrative of how the securities laws administered by MAS may apply. The MAS also emphasised that any party wishing to offer digital tokens in Singapore or operate a platform involving digital tokens in Singapore are encouraged to seek proper legal advice in order to ensure that their proposed activities are in compliance with all applicable laws here.
Just one week after the DTO Guidelines were issued, the MAS launched a second consultation on its proposed payments regulatory framework, known as the Payment Services Bill. The Proposed Payment Services Bill aims to streamline the regulation of payment services under a single legislation, expand the scope of regulated payment activities to include virtual currency services and other innovations, and calibrate regulation according to the risks posed by these activities. In the first consultation last year, the MAS sought pubic feedback on the overall regulatory framework in relation to payment services as a whole and took into account the responses when deciding on enacting new legislation in the form of the Proposed Payment Services Bill.
At present, various types of payment services are regulated by the MAS under the Payment Services (Oversight) Act (Cap. 222A) ("PSOA") and the Money-Changing and Remittance Businesses Act (Cap. 187) ("MCRBA"). The advent of technology and the fast-paced developments in the payment services world have clearly presented new activity and along with it, new risks that may no longer be sufficiently protected under the PSOA and MCRBA. The Proposed Payment Services Bill therefore seeks to:
(i) streamline payment services under a single legislation by combining the PSOA and the 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 pose by adopting a modular regulatory regime.
In line with ensuring that Singapore's laws and regulations remain relevant and adequate for us to operate in a safe environment, the Proposed Payment Services Bill will empower MAS to regulate payment services for money-laundering and terrorism financing risks, strengthen safeguards for funds belonging to consumers and merchants, set standards on technology risk management and "enhance interoperability of payment solutions across a wider range of payment activities".
Once the new Proposed Payment Services Bill is enacted, payment firms will only need to hold one licence under a single regulatory framework to conduct any or all of the specified payment activities. The intention is also to only require licensing for payment activities that face customers or merchants, process funds or acquire transactions, and pose relevant regulatory concerns. The new framework will expand the scope of regulation to include domestic money transfers (e.g. transferring money through payment kiosks), merchant acquisition (e.g. acquiring transactions through a point-of-sale terminal or online payment gateway), and the purchase and sale of virtual currencies.
The Proposed Payment Services Bill will differentiate regulatory requirements according to the risks that specific payment activities pose rather than apply a uniform set of regulations on all payment service providers. This again is in line with the MAS' usual regulatory outlook in not over-regulating but adapting to what is required and balancing that against any developmental interests, especially in the virtual currency space at this time. Taking a risk-based and activity-based approach may be said to be very enlightened in the circumstances. The public consultation for the Proposed Payment Services Bill will run from 21 November 2017 to 8 January 2018.
Whether you call it an enlightened approach or see it as just a beginning of many more regulations which may hit the virtual currency and Fintech space, these latest developments are certainly welcomed since they are intended to provide some comfort and protection for consumers and merchants alike for now. These developments will undoubtedly lay the right foundations for a calibrated approach in curating "smart" regulations moving forward.
A copy of the DTO Guidelines is available here.
A copy of the public consultation paper on the Proposed Payment Services Bill is available here.