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19 March, 2019
The Payment Services Act (PSA) was passed by Parliament on 14 January 2019 and is projected to come into operation sometime this year.
This piece of legislation emerged as a response to the evolving payments landscape.
It seeks to guard against the emerging risks of new payment methods.
The focus of this article is on the impact of the PSA on businesses that deal with cryptocurrencies and other digital payment tokens.
What types of tokens are regulated?
The PSA regulates “digital payment tokens”. Generally speaking, these are tokens which have a digital representation of value that is not denominated in any currency and they are accepted by the public as a medium of exchange to pay for goods or services. Examples of such tokens include Ether and Bitcoin.
Businesses should be aware that, unless otherwise exempted, the PSA will regulate their tokens as long as their tokens fulfil the definition of a “digital payment token”. Concepts or labels that are commonly used to describe and distinguish tokens such as “security token”, “payment token” or “utility token” are not recognised by the PSA and are inconclusive in determining whether a token would be regulated by the PSA.
What types of tokens are exempted?
“Limited purpose digital payment tokens” are exempted from the PSA’s regulation. These are tokens that may be likened to non-fungible utility tokens that can only be redeemed for specific goods and services. Examples include non-monetary customer loyalty points and in-game assets. However, if these tokens can be returned to its issuer, transferred or sold in exchange for money, they will not be “limited purpose digital payment tokens” under the PSA.
What types of cryptocurrency services would the PSA regulate?
The PSA regulates “digital payment token services”. The PSA regulates any services that deal in or facilitate the exchange of digital payment tokens, unless they are exempted. Cryptocurrency service providers including issuers and exchanges should pay attention to the PSA’s regulatory scope.
In the course of providing “digital payment token services”, a cryptocurrency business may have to provide other payment services that are incidental to its core business. These payment services, though incidental, may still be regulated under the PSA; each of these payment services has different rules. For example, a cryptocurrency exchange service provider may have to remit fiat currency in the course of providing cryptocurrency to fiat currency exchange services. As such, the cryptocurrency exchange service provider would also have to be aware of the PSA’s regulations regarding the remittance of fiat currency.
What must I do if my tokens and services are regulated?
If a cryptocurrency business provides payment services within the scope of the PSA, that business would need to apply for a licence under the PSA. There are three licences under the PSA:
- Money changing licence;
- Standard payment institution licence; and
- Major payment institution licence.
The type of licence required would depend on the payment services and the total value of the payment transactions for those payment services. For example, a major payment institution licence is needed if the average of the total value of all payment transactions that are processed by the business in one month over a calendar year exceeds (a) S$3 million (or its equivalent in a foreign currency) for its “digital payment token services”, or (b) S$6 million (or its equivalent in a foreign currency) for its “digital payment token services” and any other payment service that is regulated by the PSA.
Contravention of this licensing requirement may result in imprisonment for up to three years and / or a fine of up to S$250,000.
Osborne Clarke comment
The PSA is not intended to be the omnibus legislation for the regulation of cryptocurrencies. The type of regulatory regime that would apply depends on the features of the tokens. For example, even if the tokens are not regulated under the PSA, they may still be regulated under the Securities and Futures Act.
Cryptocurrency service providers should also keep an eye out for the regulations under the PSA which, as of the date of writing, have not been released for public consultation. Among other things, these regulations will set out in greater detail the licensing standards that businesses would have to meet to obtain a licence under the PSA.
For further information, please contact:
Chia-Ling Koh, Director, Osborne Clarke
chialing.koh@osborneclarke.com
