Singapore's Payment Services Act: A new framework to spur Financial Services innovation

This article is a guide to new regulations governing payment services in Singapore that came into force through the recently passed Payment Services Act. The development of this new legislation was spearheaded by the Monetary Authority of Singapore and it is designed to create a robust e-payments ecosystem in Singapore while ensuring consumer protections and building consumer confidence in the use of e-payments. The Act adopts a licensing framework for various payment services activities and acknowledges new innovations and technology developments in the field payment services. It also expands the Monetary Authority’s regulatory domain to include new types of payment services such as digital payment token services.

Introduction

Singapore is ranked as one of the world’s leading financial centers. It offers world-class options in banking and related financial services for corporate clients. One of the fastest growth areas within the country’s financial sector is modern payment services and the infrastructure to support them. The country is experiencing fast innovation in this segment with many well-funded startups having been launched in Singapore. The Singapore Government has kept abreast with these innovations and new technology developments by revising its regulatory framework as and when needed.  The most recent development in this vein is the adoption of the Payment Services Act 2019 (“the PS Act”). The PS Act came into force on January 28, 2020. Previously, regulation of payment services was governed by the Payment Systems (Oversight) Act (“the PS(O)A”) and the Money-changing and Remittance Businesses Act (“the MCRBA”). The regulations from these two older Acts were modified and merged into the PS Act, and these Acts are now repealed.

The new law has two main objectives: the first is to protect the financial stability of Singapore and ensure fair competition between market participants; the second is for MAS to establish a licensing regime and provide direct oversight of payment systems and payment service providers to ensure that they comply with the Anti Money Laundering and Countering the Financing of Terrorism (“the AML and CFT”) regulations. To comply with the PS Act, Singapore’s businesses who in any manner are involved with payment systems or payment services must be familiar with the licensing measures and obligations entailed in the AML and CFT regulations.

The article includes the following topics:

What Does the New PS Act Regulate?

In a nutshell, the new legislation:

  • Sets up a single regulatory framework for payment services under the recognition that there is a growing convergence across various types of payment activities;
  • Involves two regulatory schemes — the designation and licensing regimes;
  • Expands the regulatory scope of the MAS to now include seven basic types of payment services, including digital payment token services and merchant acquisition; and
  • Establishes a modular and risk-oriented regulatory structure wherein the rules can be adjusted to match the scope of services offered by service providers.

These aspects are explained in more detail below.

Designation Regime

Certain payment systems may be “designated for closer supervision”, under the terms of the PS Act, if they play a critical role in the safety and efficiency of the financial system of Singapore. The three designation categories are: systems considered to be Systemically Important Payment Systems (SIPS); System-Wide Important Payment Systems (SWIPS); or any other designation which authorities deem is in the public interest to designate as such.

SIPS are systems whose disruption could cause ripple-effect disruption to other participants or a systemic disruption to the financial system of Singapore. For example, this includes the MAS Electronic Payment System (MEPS+).

SWIPS are systems whose disruption could affect public confidence in the payment systems or the financial system of Singapore. SWIPS include the following systems: Fast and Secure Transfers (FAST), the Singapore Dollar Cheque Clearing System, the US Dollar Cheque Clearing System, the Inter-bank GIRO (IBG) System, and the Network for Electronic Transfers.

It’s clear that the designation regime affects only the biggest and the most significant systems and would be unlikely to affect smaller payment services or solutions that entrepreneurs may launch.

Licensing Regime

Payment service providers are required to obtain a license if they provide specified payment services under the PS Act. You must obtain a license if you provide any of the following payment services:

  • Account issuances services. These include any services that issue payment accounts to customers or that involve operations required by a payment account. Examples are non-bank credit cards and e-wallets.
  • Money transfer services. This refers to services that facilitate the domestic transfer of funds within Singapore, such as online payment gateways and physical payment kiosks.
  • International money transfer services. Services that perform cross-border transfer of funds into and out of Singapore.
  • Merchant acquisition services. Service providers that process payments on behalf of merchants. Examples include payment gateways or point-of-sale card terminals.
  • Money-changing services. Services that facilitate the buying and selling of foreign currencies in Singapore, including online payment service providers and any firms profiting from the exchange of physical currency.

In addition, the PS Act has an expanded scope that includes services associated with virtual assets and currencies. Accordingly, the PSA also applies to:

  • E-money issuance services. These cover services that facilitate the issuance of e-money that customers can store in e-wallets, transfer to others, and use to pay for goods and services.
  • Digital payment token services. Providers of exchange services for digital payment tokens (DPT) or platforms for the purchase and sale of DPT, also known as cryptocurrencies, within Singapore.

The law does not mandate a license for:

  • Payment instrument aggregators — service providers that allow merchants to process mobile or e-commerce payments. They let businesses accept credit and debit card payments without setting up a merchant account through a bank. Such providers do not process funds, they merely store and relay payment information;
  • Data communication platforms that transmit financial information;
  • Market participants that provide services to other payment service providers and financial institutions.

Сlasses of Licences

If your company undertakes one or more of the above activities, you will need to choose between the following three classes of licences. Each is aligned to the risks posed by the scope and the scale of services that the licensee provides.

  1. Money-changing license. Under the Money-changing license you can only provide money-changing services. Under the PS Act, these are regulated largely the same way as they were under the previous MCRBA.
  2. Standard payment institution license. If you are running a standard payment institution and have the relevant license, you may provide any combination of the above seven defined payment services, but below the specified transaction flow or e-money float thresholds as set out in the PS Act. These limits are as follows:
    • Transaction Value. Average monthly payment transactions for any activity must be below SGD 3 million (average over a calendar year).
    • E-Money Float. Average daily e-money float must be below SGD 5 million (average over a calendar year).

    Such licensees’ activities are regulated relatively lightly.

  3. Major payment institution license. Only businesses holding major payment institution licenses can carry out all seven types of payment services above the specified transaction flow or e-money float thresholds. As the scale of their operations poses more risk, they are subject to more regulation.

Let's review the three types of licenses in more detail.

Money-Changing Licence

Money-changing licensees may only conduct money-changing services, namely the service of buying or selling foreign currency notes. Companies that provide other payment services must hold a standard payment institution licence or major payment institution licence instead.

Who Can Apply

The law requires that the individual applicants, partners or directors of a company applying for this license should have a minimum of 1 year's relevant working or business experience on a full-time basis.

The following governance requirements must also be met:

Individuals. For sole proprietors, the applicant must be a Singapore citizen.

Partnership or Limited Liability Partnership. The majority of partners should be Singapore citizens. If there are only two partners, only one needs to be a Singapore citizen.

Singapore-owned Company. More than 50% of the equity shareholdings should be beneficially owned and effectively controlled by Singapore citizens. A majority of the board of directors of the company should be Singapore citizens. If there are only two directors, only one of the directors needs to be a Singapore citizen.

Foreign-owned Company. In the case of a Singapore-incorporated, wholly-owned subsidiary of a foreign bank, or a foreign company primarily engaged in money-changing, the parent company must:

  • Be of significant size. In the case of a foreign bank, it needs to be ranked among the top banks in the country where it is incorporated.
  • Possess a good track record and reputation i.e. meet the “fit and proper” test.
  • Be adequately regulated and supervised by its home supervisory authority for AML and CFT.

Admission Criteria

MAS assesses the applications holistically and issues licenses on a case-by-case basis. When deciding, the authorities takes into consideration factors such as:

  • Fitness and propriety of the applicant; and in the case of a company, partnership or limited liability partnership, the fitness and propriety of its management;
  • Financial condition of the applicant, and in the case where the applicant is a company, partnership or limited liability partnership, its track record and financial performance in previous years;
  • Ownership and shareholding structure;
  • Qualifications and experience, particularly in operating a money-changing business and in complying with the anti-money laundering and countering the financing of terrorism regulations;
  • Business plan and model, including AML and CFT policies and procedures;
  • Whether the public interest will be served by granting a licence.

Application fee and payment method

All applicants are required to pay a non-refundable application fee of S$500 and an annual licence fee of S$1,500.

Processing time

As each application will be evaluated on a case-by-case basis, processing time depends on the circumstances of each application and the completeness of the information submitted. All applications are processed promptly.

Standard Payment Institution Licence

Standard payment licensed institutions may provide any combination of the seven defined payment services as long as the volume is below the thresholds as defined in the Act. In summary, these thresholds are:

  • S$3 million in monthly transactions for any payment service (other than e-money account issuance and money-changing services);
  • S$6 million in monthly transactions for two or more payment services (other than e-money account issuance and money-changing services);
  • S$5 million of daily outstanding e-money.

Note that entities that provide payment services beyond the specified thresholds, must acquire a Major Payment Institution Licence.

Who Can Apply

The MAS has specified the following requirements for applicants:

  • The applicant must be a Singapore-incorporated company or a foreign corporation registered in Singapore;
  • The applicant must have a permanent place of business or registered office;
  • The applicant must have minimum base capital of S$100,000;
  • The applicant's board of directors should have either:
    • At least 1 executive director who is a Singapore citizen or Singapore permanent resident, or
    • At least 1 non-executive director who is a Singapore citizen or Singapore permanent resident and at least 1 executive director who is a Singapore Employment Pass holder.

Admission Criteria

When assessing an application, MAS takes into consideration factors such as:

  • Fitness and propriety of the controllers and directors;
  • Governance structure;
  • Qualifications and experience, particularly in operating a payment services business and compliance with regulatory requirements;
  • Financial condition and track record;
  • Business plan and model, including operational readiness;
  • Ability to comply with obligations under the PS Act, including compliance, technology risk management, and audit arrangements;
  • Regulatory status in other jurisdictions, where applicable;
  • For applicants with a holding company, commitment to conducting operations in Singapore;
  • Whether the public interest will be served by granting a licence.

Licence Fee

Standard payment institutions are required to pay an annual licence fee depending on the payment services they are licensed to conduct. The fees are prescribed in the law and are, on average, S$5,000.

Major Payment Institution Licence

The Major Payment Institution Licence is the most comprehensive license. A license holder can provide any combination of the seven defined payment services without being subject to any constraints.

Who Can Apply

The MAS’s criteria for applicants are as follows:

  • The applicant must be a Singapore-incorporated company or a foreign corporation registered in Singapore;
  • The applicant must have a permanent place of business or registered office in Singapore;
  • Minimum base capital of the applicant must be S$250,000;
  • The applicant's board of directors should have either:
    • at least 1 executive director who is a Singapore citizen or Singapore permanent resident, or
    • at least 1 non-executive director who is a Singapore citizen or Singapore permanent resident and at least 1 executive director who is a Singapore Employment Pass holder.

Admission Criteria

When assessing an application, MAS will take into consideration the same factors as it does for a Standard Payment Institution License, including fitness and propriety of the controllers and directors, governance structure, financial condition, and track record, etc. MAS considers each application on its own merits and may take into account other factors on a case-by-case basis.

Licence Fee

Major payment institutions are required to pay an annual licence fee, the applicable amount depending on the payment services they are licensed to conduct. The fees are prescribed in the law and are, on average, S$10,000.

Risk mitigation

Regulations set out in the PS Act are designed to mitigate four key risks that are common across most payment services. They are as follows:

  1. User protection. The new law requires major payment institutions to protect customer funds from loss through the institutions’ insolvency by using any of the following means:
  • An undertaking or guarantee by any bank or other prescribed financial institution in Singapore to be fully liable to the customer for such monies;
  • A deposit in a trust account; or
  • Protecting in such other manner as may be decided by MAS.

2. AML and CFT. Payment services may be used for money laundering or terrorism financing purposes. The appropriate AML or CFT requirements may be imposed by MAS on relevant licensees through Notices issued under the MAS Act. Low-risk transactions are exempted from AML and CFT requirements.

3. Interoperability. The PS Act gives MAS formal powers to ensure interoperability of payment solutions, in the interests of consumers and market development. There are plans to adopt a common standard to make widely used payment acceptance methods interoperable.

4. Technology risk management. The new law empowers MAS to impose technology risk-management requirements on all licensees, such as cyber-security risk management requirements. Payment service businesses must ensure that there is adequate risk governance and implementation of mitigation strategies. Special attention must be paid to areas such as user authentication, data loss protection, and cyber-attack prevention and detection.

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Summary

The PS Act provides a new framework for regulating payment systems and payment service providers in Singapore. Its intention is to strengthen consumer protection and promote confidence in the use of e-payments. The Act adopts a designation regime and licensing framework that recognises new developments in payment services. The Act also expands MAS's regulatory powers. The legislation now covers new types of payment services such as e-money issuance services and digital payment token services. It also defines risk-mitigation activities for operators of payment services and imposes relevant obligations upon the licensees.

CorporateServices.com can help you with incorporation of your payment services startup in Singapore, and can obtain the relevant payment service license for you. We can also assist in other tasks related to the setup and operation of your venture in Singapore. We can be your long-term compliance provider and ensure that your business stays in compliance with Singapore’s monetary, corporate, and tax regulations.

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