New Singapore Banking Laws: The Payment Service Act

What is the PSA and what is its purpose?

A new piece of legislation recently came into effect in Singapore—the Payment Services Act (“PS Act”)—a comprehensive set of laws that are now being administered by the Monetary Authority of Singapore (“MAS”). On January 28th, 2020, the PS Act came to life and consequently replaced the Payment Systems (Oversight) Act of 2006 and the Money-Changing and Remittance Businesses Act of 1979, both of which are now repealed.

The PS Act is basically a consolidation of the aforementioned repealed pieces of legislation and one that accounts for new innovations that come since 2006, like cryptocurrencies. The PS Act will require almost all businesses engaged in payment services to be licensed and regulated.

The PS Act is an expansion of protection for the consumers as well implementing a more encompassing regulatory framework for any businesses engaging in payment services and the payment systems providers use. If you’re a payment service provider you should already know about this but if not, you’ll need to wrap your head around the PS Act ASAP. It’s a big change for anyone in this line of work.

Additionally, Fin-tech businesses may be affected by their legal obligations and changes to regulatory requirements under the PS Act and should ensure that their practices are compliant.

In this article, I’ll outline the key points you’ll need to know about the PS Act—who the Act applies to, what type of license you’ll need, and other obligations that might apply to you under the PS Act.

Note: There is a transitional period in effect now, but the deadline has passed for notifying the MAS that you require that exemption (February 27, 2020).

Who the PSA applies to: Categories of payment activities

These are the 7 types of businesses the PS Act will apply to and will have to apply for a license to be legal:

Account issuance services

Services involving issuing a payment account or any service relating to any operation of a payment account

Old regulatory framework: Only as part of another currently regulated service

Examples:

• Providing an e-wallet
• Providing a non-bank issued credit card

Merchant acquisition service

Providing a merchant acquisition service in Singapore, involving the processing of payment transactions from, and payment receipts on behalf of, merchants

Old regulatory framework: Only as part of another currently regulated service

Examples:

• Merchant acquiring bank
• Point-of-sale terminals
• E-money issuer making payments to merchants

Domestic money transfer services

Providing a local funds transfer service in Singapore

Old regulatory framework: None

Examples:

• Payment gateway services
• Payment kiosk services

Cross-border money transfer services

Providing an inbound or outbound remittance service in Singapore

Old regulatory framework: Outbound transfers only under the Money-Changing and Remittance Businesses Act

Examples:

• Providing an e-wallet
• Providing a non-bank issued credit card

E-money issuance services

Issuing e-money to allow the user to pay merchants or transfer to another individual

Old regulatory framework: Only as a ‘stored value facility’ for merchant payments under the Payment Systems (Oversight) Act

Examples:

• Issuer of stored-value cards
• Issuer of online stored-value tokens

Digital payment token (“DPT”) service

Buying or selling DPTs, or providing a platform to allow persons to exchange DPTs

Old regulatory framework: Some ancillary regulation under the Securities and Futures Act

Examples:

• Cryptocurrency (e.g., bitcoin or ether) exchange
• Cryptocurrency dealer

Money-changing services

Buying or selling foreign currency notes

Old regulatory framework: Fully regulated under the Money-Changing and Remittance Businesses Act

Examples:

• Physical counter currency exchange

There are some notable exemptions to licensing under the PS Act that apply to several categories of payment services providers:

• Certain technical (e.g. IT or communication) services that support payment services, where the service provider does not enter into possession of the funds
• Payment services that are solely incidental or necessary to the business of a Singapore-regulated financial adviser, insurer, capital market intermediary or trust company
• Singapore-licensed banks, merchant banks, finance companies and credit/charge-card issuers are exempt from licensing, but subject to conduct obligations under the PS Act
• Services relating only to “limited purpose e-money” and/or “limited purpose DPT” (e.g., loyalty points)

You’ll need one of three licenses

Types of Payment Services Licence (“PSL”):

1. Money-changing licence: Only allows a business holding a money-changing licence to conduct money-changing services. Remittances don’t fall under this license.
2. Standard payment institution licence (“SPI”): A business that conducts one or more of the specified payment services, but below the thresholds listed here. Firms providing any payment service with:

• • average payment transactions per month per activity (over a year) of up to S$3 million;
  • average payment transactions per month for two or more activities (over a year) of up to S$6 million; or
  • a daily average (over a year) of outstanding e-money of up to S$5 million

3. Major payment institution licence (“MPI”): This licence imposes a more comprehensive regulatory regime for larger payment institutions above any of the thresholds listed for a SPI license.

Conditions for application for a PSL:

• For standard payment institution or major payment institution licences, the applicant must:
  • be a company (incorporated in Singapore or overseas);
  • have at least one executive director who is a Singapore citizen or Permanent Resident, or of a class of persons prescribed by MAS; and
  • have registered office in Singapore or a permanent place of business in Singapore; and
  • satisfy prescribed operational and financial requirements specified by the MAS by notice in writing for the duration of the licence.
  • have base capital of not less than SGD100,000
  • maintain a security deposit of SGD100,000 (if the average, over a calendar year, of the total value of all payment transactions that are accepted, processed or executed by the licensee in one month, does not exceed SGD6 million (or its equivalent in a foreign currency), for any one payment service it provides) or SGD200,000 (in other cases)
• For money-changing licences, an applicant of a money-changing licence must have a registered office or a permanent place of business in Singapore
  • Also have a base capital of not less than SGD250,000
  • Same security requirement as SPI licenses

Forms to submit to the MAS in support of your PSL application:

• The main licence application form (Form 1)
• The form to apply for a change or variation of an existing licence (Form 2)
• The form to apply for approval of a firm’s CEO, director or partner (Form 3)

Other obligations under the PS Act

There are four major areas that the PS Act will outline regulation for:

• User protection: MPIs will have to safeguard customer monies from loss from insolvency by way of:
  • an undertaking or guarantee by any bank in Singapore
  • trusts; or
  • safeguarding in such other manner as may be prescribed by MAS
• Anti-money laundering and counter-financing of terrorism (“AML/CFT”): MAS will issue notices that will impose AML/CFT requirements through the PS Act and will principally comprise customer due diligence measures

• Interoperability: MAS can exercise interoperability powers under PS Act, meaning that the can impose a common operating standard or platform for types of payment systems
• Technology risk management: This consists of a broad set of requirements, ranging from governance and oversight measures to IT security and audit requirements