The Payment Services Act
Singapore’s Payment Services Act 2019 (PSA) is a long-awaited piece of legislation that consolidated and updated various payments related legislation in Singapore, most if not all of which were not drafted in the era of FinTech and were fast becoming inadequate to deal with major innovation in the payments industry. The PSA, which came into effect on January 28, 2020 also introduces new licensable activities relating to the provision of payment services, resulting in what the Monetary Authority of Singapore (MAS) terms an omnibus framework, covering both new and traditional payment activities.
In summary, the following activities are considered payment services under the PSA:
- Account Issuance – issuing or operating a payment account (for example, an eWallet) in Singapore;
- Domestic Money Transfers – providing local funds transfer services, including payment gateway services and payment kiosk services;
- Cross-border Money Transfers – providing remittance services in Singapore;
- Merchant Acquisition – providing services where the service provider contracts with a merchant to accept and process payment transactions resulting in a transfer of money to the merchant;
- E-Money Issuance – issuing e-money in Singapore to allow the users to make payments or transfers of eMoney;
- Digital Payment Tokens Dealing or Exchange – including the buying and selling of virtual currency or providing a platform allowing persons to exchange virtual currency in Singapore; and
- Money Changing – buying and selling of foreign currency notes.
Impact on the industry
The PSA will have a significant impact on the industry, both in relation to cryptocurrency related activities, as well as more ‘traditional’ payments services.
Digital payment tokens
Cryptocurrencies, virtual currencies and utility tokens have not previously been defined by legislation in Singapore. The PSA has set out a definition of the term ‘digital payment token’ as any digital representation of value that is expressed as a unit, not denominated in any currency or pegged to any currency, intended to be a medium of exchange accepted by the public as payment and can be transferred, stored or traded electronically.
Utility tokens have generally not been regulated by the MAS as financial products, but intermediaries dealing with such utility tokens may now require licensing if such utility tokens constitute digital payment tokens.
Cryptocurrency exchanges have so far not been regulated as financial institutions in Singapore, as long as the tokens listed on the exchange do not constitute capital markets products as defined by the Securities and Futures Act (Cap. 289) (SFA).
With the commencement of the PSA, cryptocurrency exchanges may now require a payment institution licence if its activities and/or services amount to payment services.
For example, if a cryptocurrency exchange processes either fiat currency or a currency that satisfies the definition of a digital payment token, it now requires licensing. Allowing its users to purchase, sell or exchange digital payment tokens for either fiat currency or other digital payment tokens would constitute the processing of fiat currency or digital payment tokens as the case may be.
eWallets allowing users to store monetary value in a device or account to be used to make payments have previously been regulated as stored value facilities. Persons operating stored valued facilities with stored value exceeding S$30 million needed to obtain approval from the MAS to operate such facilities.
The PSA has set out a new definition of ‘eMoney’, being any electronically stored monetary value that is denominated in a currency or pegged by its issuer to a currency, and has been paid for in advance to enable the making of payments, is accepted by a person other than its issuer and represents a claim on its issuer.
Persons operating stored value facilities will now be regulated as operating an eMoney issuance service, which requires licensing under the PSA. They are also subjected to further restrictions – for example, a prohibition against lending of the funds transferred by their customers as payment for the eMoney.
The MAS has always taken the position that regulations in the fast developing payments space must not front-run innovation to avoid prematurely stifling any development, or adoption, of useful technology. The PSA can be viewed as providing much needed regulatory certainty and consumer safeguards which will in turn encourage growth in this space.