14 February 2018 (Singapore) – UPCOMING SINGAPORE PAYMENT SERVICES BILL
Written by Winston Wong and Misa Mitsugi, Flint & Battery LLC
At present, the Monetary Authority of Singapore (“MAS”) regulates various types of payment services under two pieces of legislation – the Payment Systems (Oversight) Act (Cap. 222A) (“PS(O)A”) and the Money-Changing and Remittance Businesses Act (Cap. 187) (“MCRBA”). However, new payment methods and services are emerging, for instance payments and money transfers can now be done using Bitcoin, Ether and other kinds of cryptocurrencies, which are not regulated by a central bank or a monetary authority, and e-wallets such as Apple Pay, Android Pay, DBS PayLah!, PayNow and other internet-based e-wallets are becoming more widely used. These new developments do not fit neatly within the PS(O)A or MCRBA and pose risks and challenges that the acts did not anticipate. As we move closer to becoming a cashless society, the current regulatory framework needs an update and the MAS has since proposed a Payment Services Bill (“BIll”) and concluded its second public consultation for the Bill on 8 January 2018.
Our findings of the Bill are set out as follows.
The future sole payments legislation – the Payment Services Act (“PSA”)
The Bill proposes to replace the existing PS(O)A and MCRBA with the PSA. The PSA will be a single legislation that governs both traditional (i.e. cash, remittance and money-changing) and innovative (i.e. e-wallets, e-money and virtual currency) payment services and systems.
Two parallel regulatory frameworks – licensing and designation regimes
To achieve this in a seamless and effective manner, the Bill proposes two parallel regulatory frameworks. The first framework is a licensing regime. The Bill proposes to adopt an activity-based approach such that any entity which provides the regulated “payment services”, listed in Schedule 1, will require a licence or be exempted from requiring a license. To streamline the process, a licensee will only require a single licence to conduct any or all of the regulated payment services. The second framework is a designation regime that is largely similar to the existing PS(O)A framework, but it is proposed that the designation criteria be expanded to allow the MAS to designate payment systems for competition reasons.
Payment services regulated by the PSA
A. Providing account issuance services (including stored valued facilities (“SVFs”) and e-wallets)
B. Providing domestic money transfer services
C. Providing cross border money transfer services (both in-bound and out-bound)
D. Providing merchant acquisition services
E. Issuing e-money (to allow the user to pay merchants or transfer e-money to another individual)
F. Providing virtual currency services (buying or selling virtual currency, or providing a platform to allow persons to exchange virtual currency in Singapore)
G. Providing money-changing services (exchange of physical currency notes)
Introducing “e-money” & “virtual currency”
For the first time, the Bill defines key terms such as “e-money” and “virtual currency”. While there are a few factors differentiating the two, the Bill proposes that the important distinguishing factor is that e-money is denominated in fiat currency while virtual currency is not. According to the Bill, whether the activity will require licensing will depend on what payment services are provided in relation to the two, for instance, an entity will require a licence if they issue e-money in Singapore or to persons in Singapore, or if they operate a platform where virtual currency can be bought and sold, however merely using virtual currency as a means of payment will not require licensing. On a related note, the term “digital token” was also recently defined by the MAS in their Guide to Digital Token Offerings where they set out the circumstances in which a digital token constitutes a securities and is subject to the relevant securities laws.
• It is our view that the Bill can be more forward-looking and ought to widen its applicability such that entities cannot avoid licensing requirements by simply operating from overseas.
Today, it is easy to escape the geographical requirement of providing a service in Singapore by operating from overseas. While the Bill has some extraterritorial reach, it is our view that the MAS will have to further assess whether the PSA will have an extraterritorial scope to the same extent as s339 of the Securities and Futures Act (Cap.289) (“SFA”). Comparing the two texts, the SFA applies to acts committed outside of Singapore that have “a substantial and reasonably foreseeable effect in Singapore” whereas the Bill proposes to apply, on one hand, to entities which issue e-money or provide virtual currency services “in Singapore or to persons in Singapore” and, on the other hand, to payment systems that are “widely used in Singapore or its operations may have an impact on the operation of one or more payment systems in Singapore”. The effect of these statements is that an entity which issues e-money outside of Singapore or to persons outside of Singapore may not require a licence, however a payment system that operates to a similar extent outside of Singapore or to persons outside of Singapore but may have an effect in Singapore may require a licence. It is our view that the PSA should be more forward-looking such that the issue of e-money and provision of virtual currency services should have the same extra-territorial scope otherwise it may not be difficult to escape these carefully-considered requirements.
• It is our view that the PSA will be enacted within 2018.
Today, we have the PS(O)A and the MCRBA. With the close of the second public consultation, the review of the Bill is near conclusion thus we will soon have a new payments legislation and be one step closer towards MAS‘s vision of Singapore as an e-payments society. It will be prudent for you to start reviewing your existing business activities and considering how they may fall within the upcoming PSA, whether you may require a licence and what compliance requirements you may be subject to. From the commencement of the PSA, the Bill proposes a grace period of six months for entities to apply to be licensed. You may need to apply for one of the following: a money-changing licence, a standard payment institution licence, or a major payment institution licence unless you fall within exemptions. When you are licensed, you will need to comply with the new requirements of the PSA which, as explained in the consultation paper, aims to mitigate anti-money laundering, user protection, interoperability and technology risks. If you are currently licensed by the MAS under the existing PS(O)A or MCRBA, you may not need to re-apply for a new licence, however you should still be alert to any new compliance requirements you may be subject to.
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Keywords: Cryptocurrency, e-currency, Bitcoin, Ether, Ethereum, ICO, initial coin offerings, crowdfunding, regulation, legislation, Singapore.