Singapore to elevate hub status with new digital banking regulation

A more flexible Payment Services Act makes it easier for fintechs to apply full operations in Singapore.

The Monetary Authority of Singapore (MAS) has finally commenced the new Payment Services Act (PSA), repealing the Money-changing and Remittance Businesses Act and the Payment Systems (Oversight) Act.

The new act, launched in January 2020, covers new types of payment services, such as digital payment token services, and adopts an activity-based licensing framework. It is expected to be enhanced under the new PSA in an effort to strengthen consumer protection and promote confidence in the use of e-payments.

What makes the regulatory framework of the new PSA more flexible than the two previous acts it repealed?

The PSA unifies the prior regulatory regime and implements a flexible, modular and risk-focused regulatory structure. This allows the rules to be tailored both to the specific scope of services being offered by a payment services provider and to the magnitude and systemic importance of such providers, according to Chua Tju Liang, director of corporate and finance at Drew & Napier.

Chua added that under the PSA licensing regime, at any point in time, a payment service provider needs only one license, but of a class that corresponds to the risk posed by the scale of payment services provided. Risk mitigating measures are then tailored to the specific payment services that a licensee provides to better safeguard customer and merchant monies, ensure adequate controls against money laundering and terrorism financing risks, reduce fragmentation and strengthen technology and cyber standards in the payments space.

Can you elaborate the benefits that the Act brings for global cryptocurrency firms?

Baker McKenzie’s financial services practice principal, Stephanie Magnus said that in an area where new services and technologies are launched, regulatory certainty is crucial. It gives cryptocurrency firms and players in the market comfort over how crypto-related services are regulated. The oversight of cryptocurrency firms also requires AML/KYC rules to be complied with and brings a previously unregulated market into ethical and KYC standards, which is much needed in light of the high risk transactions that may take place in the crypto space.

Which types of payments services will be regulated?

“The PSA will license and regulate seven distinct categories of payment services. The new categories of payment services, i.e., account issuance, e-money issuance, domestic money transfer services, cross-border money transfer services both in-bound and out-bound, merchant acquisition and digital payment token services are now licensable activities under the PSA,” said Elaine Chan, joint head of the financial services regulatory practice at WongPartnership.

The range of licensable payment services has been expanded due to the increased complexity of the payments landscape with the proliferation of new players and innovative payment solutions available in the market. The new framework is intended to address emerging risks arising from the rapidly evolving payments ecosystem in areas such as money laundering/terrorist financing, shadow banking, cyber-security, consumer protection and interoperability.

Ultimately, the new framework is intended to consolidate the regulation of all relevant segments of the payments ecosystem in Singapore to improve interoperability, promote public confidence and encourage the use of e-payments.

How can PSA assist in promoting digital payment tokens?

“Whilst digital payment token service providers are primarily regulated to ensure that there are appropriate AML measures in place, the prerequisite for licensing is that the applicant must meet fit and proper requirements,” said Dentons Rodyk’s senior partner Jacqueline Loke.

She explains that entities that meet such fit and proper requirements will have the opportunity to seek a license under PSA and establish operations in Singapore.

For digital payment token service providers too much regulation may adversely stifle innovation. The risk-based supervisory approach which PSA represents should be
an attractive proposition for service providers who are seriously considering basing their operations in Singapore, as it provides regulatory safeguards for higher risk aspects of the business, and unregulated space to explore improved and more efficient approaches in payment services.