Singapore monetary authority consults on payment services regulations

The consultation covers areas such as licensing structure and fees, licensing requirements, proposed exemptions from the regulations, and transitional arrangements.

The Singapore government passed the Payment Services Bill in January 2019, bringing fintech providers under regulatory supervision for the first time and providing a framework for designating critical payment systems for regulation.

In the consultation paper (24 page / 578KB PDF) the MAS said it would prescribe three sets of regulations as well as the Payment Services (Designated Payment Systems) Order, with the Payment Services Regulations intended as the main regulation for licensees and designated payment systems (DPS) entities such as DPS operators and settlement institutions.

All entities covered by the Payment Services Act (PSA) will have to pay a licence fee, with a two-tiered structure. If the total value of all transactions processed by a payment services provider exceeds S$36 million in a calendar year, they will have to apply for a major payment institution licence. This will also apply if the average daily value in a calendar year stored across all of a provider’s issued e-money accounts exceeds S$5m.

The MAS suggested that application fees would be a one-time payment, and the amount required will depend on the class of licence required as well as the type and number of activities that the entity conducts. Entities that provide two or more payment services will have to pay the corresponding application fees for all the payment services they provide.

Firms will have 30 days to apply for a licence upgrade if their operations require a variation in the licence from the one originally obtained.

The consultation paper said standard payment institutions would be required to maintain a capital of S$100,000, while major payment institutions would be required to maintain a base capital of S$250,000. The regulator said these thresholds were put in place to ensure that licensed entities continue to have sufficient resources to conduct the payment services they have been licensed for.

The PSA requires major payment institutions to comply with safeguarding and safety deposit requirements, for example by safeguarding funds in transit.

The consultation document said these obligations could be complied with by obtaining an undertaking from a merchant bank or finance company; obtaining a guarantee from a merchant bank, finance company, or financial guarantee insurer; or depositing customer monies into a trust account that is ring-fenced against any other funds.

Major payment institutions that conduct a significant volume of payment transactions in respect of any payment service are required to maintain a safety deposit with the MAS. For transactions totalling less than S$6m a month for any one service, the MAS has proposed a deposit of S$100,000, rising to S$200,000 for larger totals.

The consultation paper proposed two key exemptions from the regulations: an exemption from holding any payment institution licence, and an exemption for certain domestic money transfer providers.

Financial services expert Bryan Tan of Pinsent Masons MPillay, the Singapore joint law venture between MPillay and Pinsent Masons, said MAS was proposing to grant an exemption to firms whose business models do not pose significant money laundering or terrorist financing risks. 

Low risk areas include account issuance services which do not allow physical cash withdrawal, or only to a limited extent; or transactions which are only allowed where payment is funded from identifiable sources.

“The above examples suggest that this exemption may apply in situations where the transaction amounts are low, and risks of money laundering or financial terrorism are addressed by having funds originate from sources that are already separately regulated by MAS for money laundering and financial terrorism risks,” Tan said.

Under transitional arrangements, firms which are currently licensed under Singapore’s Money-Changing and Remittance Businesses Act, as well as approved holders of stored value facilities under the Payment Systems (Oversight) Act, will be deemed to have been granted a major payment institution licence when the PSA comes into force. However this will only apply to the entity's existing money-changing, cross-border remittance, or e-money issuance services. If its business operations involves other payment services, the entity will have to apply for a variation of its licence.

Entities providing digital payment token services will have six months to apply for a licence when the PSA comes into force, while other firms facing new regulation under the PSA will have 12 months to apply.