19 November, 2020
On 2 November 2020, the Payment Services (Amendment) Bill (“Bill”) was introduced for first reading in Parliament. The Bill seeks mainly to enhance the regulatory framework and to bolster the existing measures against money laundering and terrorist financing (“ML/TF”) under the Payment Services Act 2019 (No. 2 of 2019) (“PS Act”) for payment service providers, and particularly for DPT service providers. The Bill follows from the set of proposals made by the Monetary Authority of Singapore (“MAS”) in its public consultation paper issued in December 2019 on proposed amendments to the PS Act.
This client update summarises the key amendments proposed in the Bill.
Introduction
In Singapore, the provision of payment services is regulated by MAS under the PS Act, which came into effect on 28 January 2020 and which replaces the Money-changing and Remittance Businesses Act and the Payment Systems (Oversight) Act.
Currently, the range of payment services regulated under the PS Act comprises:
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(a) an account issuance service;
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(b) a domestic money transfer service;
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(c) a cross‐border money transfer service;
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(d) a merchant acquisition service;
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(e) an e-money issuance service;
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(f) a digital payment token service; and
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(g) a money‐changing service
A person who carries on a business of providing any type of payment service in Singapore is required to hold a licence and to comply with the relevant ongoing conduct obligations under the PS Act, subject to any applicable exemptions.
Financial institutions in Singapore are generally required to comply with the measures set out in the applicable MAS Notice on Anti-Money Laundering and Countering the Financing of Terrorism (“AML/CFT Notice”) for their respective categories. Currently, the AML/CFT Notices relevant to payment service providers are:
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(i) MAS Notice PSN01, which applies to payment service providers who provide account issuance service, domestic money transfer service, cross-border money transfer service or money-changing service; and
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(ii) MAS Notice PSN02, which applies to payment service providers who provide digital payment token (“DPT”) service.
Key Amendments proposed
I. Enhancing the regulatory framework for DPT service providers
The Financial Action Task Force (“FATF”) (of which Singapore is a member country) has recently revised the FATF Standards to require countries to regulate virtual asset service providers (“VASPs”) (or DPT service providers, in Singapore’s context) for AML/CFT. In general, VASP activities are regarded as more vulnerable to ML/TF risks given the speed, anonymity and cross-border nature of such activities. For instance, VASPs could be exploited by criminals to layer or safekeep the proceeds of illicit assets by transferring value in the form of DPTs from one person to another.
Under the enhanced FATF Standards, VASPs must be licensed or registered in the jurisdiction(s) where they are created in order to mitigate the risk of regulatory circumvention, and must comply with AML/CFT requirements when carrying out the following activities:
- Exchanges between virtual assets and fiat currencies;
- Exchanges between one or more forms of virtual assets;
- Transfers of virtual assets;
- Safekeeping and/or administration of virtual assets or instruments enabling control over virtual assets;
- and Participation in and provision of financial services related to an issuer’s offer and/or sale of virtual assets.
Currently, the definition of DPT service under the PS Act refers to any service of dealing in DPTs or facilitating the exchange of DPTs. To align Singapore’s regime with the enhanced FATF Standards applicable to DPT service providers, the Bill will broaden the existing definition of DPT service to include:
- Transfer of DPTs;
- Provision of custodian wallet services for DPTs; and
- Facilitating the exchange of DPTs without possession of moneys or DPTs by the DPT service provider.
The effect would therefore be to bring the above services within the scope of the PS Act, and to subject them to supervision by MAS for AML/CFT.
In addition, the Bill will introduce additional powers for MAS to impose measures on DPT service providers in order to effectively mitigate and address new risks that may arise as the DPT sector continues to evolve and user adoption of DPTs increases. In particular, the Bill will empower MAS:
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(i) To impose user protection measures on certain DPT service providers to ensure the safekeeping of customer assets held by the DPT service provider, where necessary; and
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(ii) To impose measures on certain DPT service providers where MAS considers such measures to be necessary or expedient in the interest of the public or a section of the public, the stability of the financial system in Singapore, or the monetary policy of MAS.
II. Mitigating ML/TF risks arising from cross-border money transfers
Currently, the definition of cross-border money transfer service under the PS Act refers to the service of providing inbound or outbound remittance in Singapore, whether as principal or as agent. By definition therefore, cross- border money transfer service providers who do not accept or receive moneys within Singapore are excluded from the scope of regulation under the PS Act.
However, MAS has noted in previous public consultations relating to the PS Act that persons who provide the service of “brokering” of cross-border money transfer transactions between entities in two different countries present ML/TF risks that are similar to other payment services that are already regulated under the PS Act. This is notwithstanding that under such business models, no moneys are accepted or received in Singapore by the service provider.
To address the ML/TF concerns arising in such cases, the Bill proposes to broaden the definition of cross-border money transfer service to include service providers who do not accept or receive moneys in Singapore, but nonetheless provides any service of facilitating cross-border money transfers between entities in different countries. Entities that carry on a business of providing cross-border money transfer service will be required to be licensed under the PS Act, and be subject to AML/CFT requirements under MAS Notice PSN01.
III. Other miscellaneous amendments to the PS Act
Finally, the Bill also introduces the following other technical amendments to the PS Act:
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(a) Empower MAS to prescribe an additional subset of payment services or class of licensees to which the requirement to safeguard customer money can be extended to;
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(b) Broaden the definition of domestic money transfer service to include situations where either the payer or the payee is a financial institution (as opposed to the current definition which only includes the situation where both the payer and payee are not financial institutions); and
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(c) Provide that the general duty to use reasonable care not to provide false information to MAS applies to all persons, whether or not the person is an individual.
Next Steps
The Bill is likely to be set down for its Second Reading at the next Parliament sitting. Under Singapore’s law-making process, all bills must pass through three readings in Parliament and be approved by a majority of votes in Parliament before it may be presented for assent by the President. A bill that has received the President’s assent is enacted into law and becomes an act of parliament. Thereafter, the act will come into force on the date date determined by the Minister in charge of the Act and notified by a commencement notification published in the Government Gazette.
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