Singapore presses ahead with new payment services regulations that will apply to cryptocurrency exchanges

Singaporean authorities are pressing ahead with a new regulatory framework for payment services. The Minister for Education, Mr Ong Ye Kung, on behalf of Mr Tharman Shanmugaratnam, Deputy Prime Minister and Minister-in-charge of the Monetary Authority of Singapore (MAS) today moved the Payment Services Bill for its first reading in Parliament.

To take into account new developments in payment services and the various risks they pose, the Bill will expand the scope of regulated payment services. The Bill will empower MAS to regulate payment services for the following key risks and concerns:

• money-laundering and terrorism financing (“ML/TF”);
• loss of funds owed to consumers or merchants due to insolvency;
• fragmentation and limitations to interoperability; and
• technology and cyber risks.

The Bill comprises two parallel regulatory frameworks.

Designation Framework for Significant Payment Systems

This framework is a regime which enables MAS to designate significant payment systems and regulate operators, settlement institutions and participants of these designated payment systems for financial stability reasons1 as well as for efficiency reasons.

Licensing Framework for Payment Service Providers

The second framework is a licensing regime that will enable MAS to regulate the provision of payment services. The payment services regulated under the Bill are:

• account issuance service;
• domestic money transfer service;
• cross border money transfer service;
• merchant acquisition services;
• e-money issuance service;
• digital payment token service;
• money-changing service.

In the Bill, a “digital payment token service” is defined as “buying or selling digital payment tokens (commonly known as cryptocurrencies), or providing a platform to allow persons to exchange digital payment tokens in Singapore”.

The Bill will regulate the above-mentioned payment services. Providers of such payment services will be required to hold a licence under the Bill in respect of the type of payment service that is provided. This activity-based licensing framework provides a modular approach to ensure that regulations are appropriately calibrated according to the risks that specific payment services pose for different business models, and this facilitates innovation.

To apply risk appropriate regulations to the specific regulated activities that the licensee conducts, there will be three classes of licences under the Bill. At any point in time, the payment service provider need only hold one licence but of a class of licence that corresponds to the risk posed by the scale of payment services provided. A payment service provider may apply to be a money-changing licensee, standard payment institution or a major payment institution. Money-changing licensees can conduct only money-changing services. Standard payment institutions may conduct any combination of regulated activities that are below specified thresholds. Both will be regulated primarily for ML/TF risks.

An applicant for a payment services licence (except for a money-changing licence) will have to meet the following criteria:

• the applicant must be a company (incorporated in Singapore or overseas);
• the applicant must have a permanent place of business in Singapore or a registered office in Singapore; and
• the applicant must have at least one executive director who is a Singapore citizen or Singapore Permanent Resident, or a person belonging to a class of persons prescribed by MAS.

For the protection of consumers and merchants, major payment institutions must safeguard customer monies from its insolvency through any of the following means:

• an undertaking by any bank in Singapore or prescribed financial institution to be fully liable to the customer for such moneys;
• a guarantee by any bank in Singapore or prescribed financial institution;
• a deposit in a trust account in such manner as may be prescribed by MAS; or
• safeguarding in such other manner as may be prescribed by MAS.

The Bill will also give MAS powers to impose technology risk and cyber security risk management requirements on all licensees. Licensees that provide payment services which carry ML/TF risks will also need to comply with ML/TF risk mitigating measures that MAS will impose under the MAS Act.

To ensure that the objects of the Bill are met, MAS will have general powers over all regulated entities, including powers to conduct inspections and investigations, and emergency powers. The Bill will require regulated entities to comply with general requirements relating to corporate governance, capital adequacy and business conduct.