Singapore – Proposed Changes To The Payments Regulatory Framework And Establishment Of A National Payments Council.

 

7 November, 2016

INTRODUCTION
 

On 25 August 2016, the Monetary Authority of Singapore (“MAS”) released a consultation paper on the proposed changes to the payments regulatory framework and establishment of a National Payments Council: the first in a series of consultations on the proposed framework and governance model for Singapore’s payments landscape.

Singapore’s payment regulations at present are divided between the Payment Systems (Oversight) Act (“PSOA”) and the Money-changing and Remittance Businesses Act (“MCRBA”) but those distinct lines between the payments and remittance spheres have become blurred with the rise of FinTech and other technological advances. The present framework has also led to certain payment providers being currently unregulated as they do not fall neatly within those defined lines. 

 

MAS is hence proposing a single overarching framework that will provide for the licensing, regulation and supervision of all payment service providers, with an increased focus on consumer protection, competition and innovation, to ensure that the requisite regulatory framework is more calibrated and flexible.

MAS has also proposed setting up a National Payments Council which will also offer greater governance over the payments ecosystem and aim to foster collaboration amongst stakeholders to promote and drive
industry payment solutions.

ACTIVITY-BASED PROPOSED PAYMENTS FRAMEWORK (“PPF”)
 

The PPF proposes to regulate entities undertaking or providing the following payment services, with the specific scope of each activity to be consulted on at a later stage.

> Activity 1: Issuing and maintaining payment instruments Examples include payment cards, payment accounts, electronic wallets, and cheques

 

> Activity 2: Acquiring payment transactions Examples include physical and online merchant acquisition services,
merchant aggregators, and master merchants

> Activity 3: Providing money transmission and conversion services Examples include remittance, currency-conversion and virtual currency intermediation services

> Activity 4: Operating payments communication platforms Examples include payment gateways, payment processors, and kiosks

> Activity 5: Providing payment instrument aggregation services Examples include payment card aggregation and bank transaction account aggregation

> Activity 6: Operating payment systems which facilitate the transfer of funds Examples include processing, switching, clearing, and/or settlement of payment transactions

 

> Activity 7: Holding stored value facilities (“SVFs”) Examples include prepaid cards and prefunded electronic wallets
The proposed introduction of activity based regulations under a single licence will relieve providers from having to apply for multiple licences and enable the undertaking of several types of payment services.

However, a single modular framework could bring about an unequal playing field as it brings together providers of varying risk profiles if we were to consider the example of systemically significant systems (e.g. NETS) as compared to less systemically significant platforms (e.g. merchant aggregators or smaller stored value facility holders).

Further, the PPF would also have to take into account and address the diversity of chief regulatory concerns specific to each type of payment service. For instance, there is the inherent risk of money laundering within remittance activities, whilst the primary concern with payments systems that facilitate transfer of funds is the safety and efficiency of such systems.

WIDER REGULATORY DRIFT NET
 

The 7 regulated activities for payments significantly widen the regulatory drift net. Platforms which were previously unregulated (Activities, 1, 2, 4 and 5 above) will now be regulated. The consultation paper did not set out the detailed rationale for the extension of the regulatory drift net to these players.

 

Providers who intermediate between merchants and acquirers will also be caught under the new framework, although MAS has proposed not to regulate manufacturers of payment terminals and software developers who are technology providers unless they operate those facilities.

MAS has also proposed that domestic money services and inbound remittance services (which are currently unregulated) will be classified as a remittance activity going forward. Similarly, international and domestic inter-bank payments messaging platforms are still under consideration for inclusion under the PPF in view of their vulnerability to money laundering and terrorism financing, and cyber security risks.

 

The introduction of the new PPF will also impact FinTech players, such as the virtual currency intermediaries who buy, sell, or facilitate the exchange of virtual currencies, and who have been nestled in the grey area thus far. Existing holders of the PSOA and MCRBA licences, however, are not expected to be impacted greatly. There should be
minimal disruption to their business operations as no change is made to their regulated activities. 

 

There is lack of clarity as to whether the current regime under the PSOA, where non-systemically significant payment systems and stored value facility holders having a float of less than $30 million are not designated and directly regulated, will continue to apply.

 

To avoid any confusion, service providers looking to conduct additional activities not originally covered under their licences should monitor the outcome of the consultation process closely and seek professional advice. On that note, regulated banking entities are also not required to obtain an additional licence to engage in these activities under the PPF.

 

NATIONAL PAYMENTS COUNCIL (“NPC”)
 

The NPC is expected to coordinate and drive strategic changes that are aligned to the economy and national initiatives such as the Smart Nation Vision. The objectives of the NPC have been proposed to include:

 

> addressing views of stakeholders in the Singapore payments ecosystem;

 

> identifying, monitoring and enforcing payment system standards; coordinating and executing industry payments projects;

 

> promoting industry collaboration, consultation and education programs;

 

> assessing, endorsing, and enforcing best practices;

 

> identifying areas of research and emerging trends to promote swift, simple, and secure payments;

 

> advising MAS on key issues relating to emerging trends, policy and supervision; and

 

> drafting, implementing and enforcing compliance with guidance policies.

The NPC is also to assume the role of the Singapore Clearing House Association ( “SCHA”) and oversee participants and operators of systems currently under the SCHA, in addition to providing governance to existing designated payment systems and other payment systems in Singapore including but not limited to public transport cards and international card schemes.

 

MAS has also proposed the membership of the NPC to include:

 

> a representative from MAS who will be the Chairman and chair the NPC Board meetings, which will then allow MAS to have oversight over the activities of the NPC;
> NPC Board members comprising industry players as well as representatives from both service providers and end users;

 

> a CEO who will be responsible for business-as-usual activities and the implementation of the NPC strategic goals;

 

> operators and providers of payment systems falling within the scope of Activity 6; and

> participants of payment systems who make use of the clearing and payment systems governed by NPC.

 

Whether the NPC should be publicly or privately owned is also a question that MAS is consulting on.  In a nutshell, the proposed establishment of the NPC aims to address the different models of payment solutions that lack interoperability and have limited demand-side participation amidst Singapore’s payments landscape currently dotted with a variety of payments solutions.

 

However, the existing payments environment made possible by the meteoric rise of FinTech is not without its flaws – the current payments ecosystem is fragmented and fraught with emerging risks.

 

CONCLUSION
 

As summed up by Ms Jacqueline Loh, Deputy Managing Director of MAS, “[t]his public consultation is an important step for MAS and the payments industry to co-create the future of Singapore’s payments landscape; one where payments are simple and secure, supported by streamlined and inclusive governance.”

However, given that MAS intends to expand the reach of its regulatory drift net, and its potentially large impact
on various players in the payment ecosystem, it would be helpful for the industry to understand the detailed rationale behind the widening net.