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New licensing moves for payment firms to be made law

PAYMENT services firms in Singapore may soon be required to apply for a Major Payment Institution (MPI) licence if any licensable activity they conduct crosses S$3 million a month or if two or more of their activities (excluding e-wallets) collectively average over S$6 million a month.

Licensable activities include account issuance, domestic and cross-border money transfer, e-money issuance, digital payment token dealing or exchange, and merchant acquisition.

This new regulation was tabled for first reading at Parliament on Monday as part of an enhanced regulatory framework for payment services in Singapore.

The Payment Services Bill - which supports the new framework - was introduced by Ong Ye Kung, Minister for Education and board member of the Monetary Authority of Singapore (MAS). He said that the Bill is envisioned to provide a more conducive environment for innovation in payment services, while ensuring that the risks across the payments value-chain are mitigated.

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The Bill will streamline the regulation of payment services within a “single activity-based legislation”, added the MAS in a press statement issued on Monday.

The MAS currently regulates various types of payment services under the Payment Systems (Oversight) Act (PS(O)A) and the Money-Changing and Remittance Businesses Act (MCRBA), enacted in 2006 and 1979 respectively.

"However, the payment services landscape has changed considerably in the past few years, beyond the scope of activities and type of risks regulated under the PS(O)A and MCRBA. New payment business models have also blurred the lines between activities regulated under these two Acts," said the MAS.

The Bill will streamline payment services under a single legislation by combining the PS(O)A and the MCRBA. To take into account new developments in payment services and the various risks they pose, the Bill will expand the scope of regulated payment services. 

It will comprise two parallel regulatory frameworks: a designation regime that enables the MAS to systemically regulate important payment systems for financial stability and efficiency; and a licensing regime that addresses retail payment services provided to customers and merchants.

The MAS said: “The activity-based licensing framework for retail payment services facilitates innovation and mitigates risks.”

At any point in time, a payment service provider needs to hold only one licence, which must be of a class that corresponds to the risks posed by the scale of payment services provided, said the MAS. 

There will be three classes of licences under the Bill: money-changing licensee; standard payment institution; and an MPI. Money-changing licensees can conduct only money-changing services. Standard payment institutions may conduct any combination of regulated activities that are below specified thresholds. Only MPIs may carry out payment services above specified thresholds.

Risk mitigating measures will then be 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, the MAS added.

Under the new framework, the threshold calculation method (which determines licence type) is simplified such that a firm will need to hold an MPI licence if it fulfills either of two conditions.

The first condition is conducting any licensable activity that crosses S$3 million a month, or two or more activities combined (excluding e-wallets) that cross S$6 million a month. The second is holding an e-money float that averages more than S$5 million daily over a year.

The MAS said that the threshold calculation method has been amended to address the difficulties faced by firms (in particular, those that provide a range of services such as account issuance, money transfer and merchant acquisition) in calculating aggregated transactions across the multiple services they provide, and in avoiding double counting.

Under the new framework, e-money issuers will be prohibited from any conduct similar to a deposit-taking business. The latter entails on-lending, or wholly or materially financing their business out of moneys received as payment for e-money. All licensees will also be prohibited from conducting consumer lending under the new framework.

Under the new framework, safeguarding options will be significantly expanded to include more options for non banks and non full-banks.

For instance, a bank in Singapore or a prescribed financial institution will be fully liable for the float or funds in transit, for which it has to give a guarantee. Currently, only a full bank has to be fully liable for, and guarantee, the float or funds in transit.

The float or funds in transit will be safeguarded in a segregated account maintained by a licensee as trustee for customers with a bank in Singapore, merchant bank or finance company. Currently, the float or funds in transit are escrowed by T+1 in any full bank.

The MAS said that the rationale behind this amendment is to provide more non-bank and non-full-bank options for fintech firms, so that they can meet the safeguarding requirements.

Ravi Menon, managing director of the MAS, said that the Bill will enhance the regulatory framework for payment services in Singapore, strengthen consumer protection and engender confidence in the use of e-payments.

“The Bill also illustrates our shift towards regulation that is modular, activity-based and facilitative of growth and development in the Singapore payments landscape,” he said.

The Bill will be tabled for a second reading at Parliament in January 2019.

The MAS conducted a public consultation on the Bill in November 2017. The MAS said that it has incorporated the feedback into the Bill where appropriate.