Written by: Hao Kai, Wanxiang Blockchain Researcher
Editor's Note: The original title was "A Preliminary Analysis of Singapore's Payment Services Act"
This article examines the main differences between Singapore ’s Payment Services Act and existing laws and regulations, and analyzes the impact of the Payment Services Act on Singapore ’s payment system and digital currencies. The conclusion of this article is that the "Payment Services Act" integrates and improves existing laws and regulations, and its scope of supervision is more extensive, which is of great significance to improve Singapore's regulatory policy in the payment field; the "Payment Services Act" includes payment digital currencies Supervision, service providers such as exchanges must apply for relevant licenses in accordance with regulatory requirements, which has changed the status of the lack of supervision of payment digital currencies. After the enactment of the Payment Services Act, it was attracted by clear and stable policies. It is expected that more and more Digital currency service providers' business in Singapore is conducive to the rapid development of Singapore's digital currency industry, which will also promote the development of the entire blockchain industry.
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Keywords: Payment Services Act, Digital Currency, Regulation
In January 2019, the Payment Service Act (PSA) passed the review of the Singapore Parliament, was formally legislated, and will be formally implemented from January 28, 2020. The Payment Services Act will have a significant impact on Singapore's payment system and digital currencies.
I. Supervision of the current payment system
(I) Legal basis
The "Payment Services Act" mentioned at the beginning that this bill will replace the "MCRBA (Money-changing and Remittance Businesses Act)" and the "Payment Systems (Oversight) Act" (PSOA) , And amend some other payments-related bills. MCRBA and PSOA are the legal basis of Singapore's current payment system. Among them, MCRBA mainly establishes regulatory requirements such as licenses for institutions conducting remittance business; PSOA mainly establishes relevant regulatory requirements for stored value payment instruments (SVF, Stored Value Facility) and designated payment systems (DPS, Designated Payment Systems).
Remittances are regulated by MCRBA. Remittance business means that the service provider accepts the customer's funds and transfers the funds to people living in countries or regions outside Singapore. Service providers providing remittance services must hold a valid remittance license. It should be noted that the MCRBA does not provide relevant regulatory requirements for electronic money.
Stored value payment instruments are regulated by the PSOA. SVF refers to a payment instrument other than cash. It can be physical or electronic. It can be obtained by users or holders through purchase or other methods. It can be used to pay for goods or services. The payable cost cannot exceed SVF. The maximum value specified by the clause.
Designated payment systems are regulated by the PSOA. DPS refers to an important payment system that affects the stability of the financial system and public confidence. DPS is designated by the Monetary Authority of Singapore (MAS), and it is required to regularly disclose information such as the shareholding, transaction, settlement and audit status of the payment system. At the same time, MAS has the right to implement operations such as admission, change, suspension or withdrawal of DPS.
(II) Regulatory agencies
Established in 1971, the Monetary Authority of Singapore is a financial management institution that functions as a central bank in Singapore. It also has two functions of financial regulation and financial supervision. MAS's main responsibilities include formulating and implementing financial and monetary policies based on national economic development, using tools such as the foreign exchange market to maintain local currency stability, controlling inflation, and supervising the banking, securities, and insurance industries in accordance with relevant laws. MAS is the regulatory body of the payment system and is responsible for formulating and promoting related regulatory policies in the payment field. At the same time, MAS is also the settlement agent of Singapore Commercial Bank.
(3) Supervision of digital currencies In Singapore, digital currencies are mainly divided into securities, payment and functional types. There are great differences in the regulatory policies for different types of digital currencies.
Securities digital currencies are regulated by the Monetary Authority of Singapore, and the issuance, sale and trading of securities digital currencies are subject to the existing Singapore Securities and Futures Act (SFA, Securities and Futures Act). In November 2017, the Monetary Authority of Singapore issued the Digital Currency Issuance Guide, which details the specific requirements for Singapore's initial coin offering. At present, there are no special regulations for payment digital currencies; functional digital currencies have not been included in the regulatory system of the Singapore regulatory authorities, and they only need to comply with universal requirements such as anti-money laundering (AML).
Introduction to the Payment Services Act
In recent years, with the development of science and technology and the emergence of new things such as digital currencies, the potential risks in the payment field have exceeded the scope of the current policy. In November 2017, MAS proposed a new Payment Service Bill (PSB) on the basis of the proposed payment framework (PPF) and publicly solicited opinions. In January 2019, the PSB was reviewed by the Singapore Parliament, was formally legislated, and was named the Payment Services Act (PSA).
The Payment Services Act includes two parallel regulatory frameworks. The "designation system" is mainly for large-scale payment systems. Similar to the designated payment system in PSOA, MAS can designate a regulated payment system to maintain financial stability and maintain public confidence. The "licensing system" is a regulatory framework set up to respond more flexibly to market changes.
(I) Type of service
The Payment Services Act includes account issuance services, domestic remittance services, cross-border remittance services, payment-type digital currency services, electronic money issuance services, merchant acquiring services, and currency exchange services under supervision. Service providers can choose to provide one Or multiple services.
1. Account issuance service
Account issuance services refer to the provision of a payment account to anyone in Singapore, or to operate any services related to the business required for a payment account, such as depositing or withdrawing funds into a payment account (excluding domestic and cross-border remittances).
2. Domestic money transfer service
Domestic remittance services refer to the remittance services provided in Singapore. Both the sender and payee in the domestic remittance service are in Singapore and neither is a financial institution. The service provider receives the sender's funds and executes or arranges the execution of remittance transactions, including payment transactions performed through a payment account, direct debit services through a payment account, and credit transaction services through a payment account.
3. Cross-border money transfer service
Cross-border remittance services refer to providing inward and outward remittance services between Singapore and other countries or regions. The service provider receives the sender's funds and executes or arranges to execute the remittance transaction to users outside Singapore, or the service provider collects remittances from overseas for anyone in Singapore.
4. Digital payment token service
Payment digital currency services mainly include two types, one is to provide services related to payment digital currency transactions, and the other is to provide any services that facilitate payment digital currency transactions. The Payment Services Act defines payment digital currencies as follows:
Payment-type digital currency refers to the digital representation of value and needs to meet the following conditions: this value is expressed as a unit; it is not denominated in any currency, and the issuer cannot anchor it with any currency; it has become or intends to become the public or part Publicly accepted medium of exchange for paying for goods or services, paying off debts; transferring, storing, or trading in electronic form; meeting other characteristics required by MAS.
5. E-money issuance service
The electronic money issuance service is to issue electronic money to anyone and allow them to conduct payment transactions. The Payment Services Act defines electronic money as follows:
Electronic money refers to the value of any currency stored in electronic form and needs to meet the following conditions: in terms of a certain currency, the issuer can anchor the electronic money with other currencies; the payment has been made in advance for the user to make payment transactions; The object cannot be the issuer of electronic money; electronic money represents the creditor's rights of an issuer.
6. Merchant acquisition service
Merchant acquiring service means that the service provider receives and processes payment transactions for the merchant according to the contract with the merchant. In the merchant acquiring service, the merchant is incorporated or operates in Singapore, or the service provider signs a contract with the merchant in Singapore.
7. Money-changing service
Currency exchange services refer to services provided by service providers in relation to buying and selling foreign currencies.
(2) Application for license
Service providers will apply for a license based on the relationship between their business model and the above 7 services. Currently there are Money-Changing, Standard Payment Institution, and Major Payment Institution licenses. .
Currency exchange licenses are limited to currency exchange services and are applicable to service providers that provide currency exchange. Due to the small scale of the business itself and the low risks involved, MAS mainly regulates service providers' money laundering and terrorist financing risks. The standard payment agency license is applicable to the business model of any combination of the above 7 services, but it has a limit on the total amount of business, lower application requirements, and a lower degree of supervision for service providers. Large payment institution licenses are applicable to all businesses that exceed the quota set by the "standard payment institution" license. Due to the larger amounts involved and higher risks, they are subject to the strictest regulations and large service providers can apply for them. If there is a change in future business requirements, the licensee may apply for a change of license so that it can meet the requirements of the payment service or license when the new business is running.
MAS announced that it will officially implement the Payment Services Act from January 28, 2020, and require all service providers to provide license application filing documents on time. At the same time, MAS also gives specific requirements for service providers' application qualifications, including the structure of corporate entities and management personnel, industry competitiveness, offices or registered addresses, basic capital, guarantees, and auditing.
Changes brought about by the Payment Services Act
Following the implementation of the Payment Services Act, the following major changes will occur in Singapore's regulation of payment systems and digital currencies.
First, the "Payment Services Act" integrates and improves the current "Currency Exchange and Remittance Business Law" and "Payment System Supervision Law". The two parallel regulatory frameworks, the designation system and the license system, also refer to existing regulatory thinking . The difference is that the scope of supervision of the "Payment Services Act" is more extensive, including domestic remittance services, merchant acquiring services, and payment-type digital currency services.
Second, domestic remittance services and cross-border remittance services will effectively replace MCRBA's supervision of remittance business. It should be noted that the MCRBA does not regulate domestic remittances, but domestic remittance services need to comply with the regulatory requirements of the Payment Services Act.
Third, electronic money issuance services will effectively replace PSOA's regulation of SVF. As can be seen from the previous definition, SVF and e-money have similarities and obvious differences. Both SVF and e-money can be stored in monetary value in electronic form with prepayment, but e-money does not stipulate payment for goods or services. For example, if a merchant sends this value stored in an electronic form to a user, by definition, it belongs to e-money but not to SVF.
Fourth, payment digital currency service providers (such as digital currency exchanges, wallets, and OTC platforms) will be regulated. They must apply for relevant licenses and comply with anti-money laundering and counter-terrorism financing (CFT) in accordance with the requirements of the MAS. And other requirements. It should be noted that the definition of payment digital currency in the Payment Services Act requires that no currency be anchored, so stable currencies like Libra are not in this category of supervision.
Fifth, the threshold for payment institutions protected by the Payment Services Act will be lowered, with the average daily floating amount reduced from S $ 30 million to S $ 5 million. This means that if the average daily floating amount exceeds S $ 5 million, any electronic money held by the payment institution will be fully protected. If the average daily floating amount does not exceed S $ 5 million, the electronic money held by the payment institution will not be fully protected, and the payment institution will need to make appropriate information disclosure to consumers. Lowering the threshold means that the number of guaranteed payment institutions will increase, but these payment institutions must meet compliance requirements. Small payment institutions will not be guaranteed, but they will have fewer compliance requirements and will not hinder their business development due to excessive regulation.
Sixth, the "Payment Services Act" has adopted prevention and control measures against major risks in the payment system, including prevention and control of customer funds loss, prevention and control of money laundering and terrorist financing risks, and prevention and control of technical risks. The lack of interoperability between different payment schemes.
Thinking and suggestions
The Singapore government regards finance as an important pillar of economic development and implements a policy of active opening and encouragement of development. In terms of supervision, we focus on innovation of ideas, dare to try and accept new things, and release the enthusiasm and innovative spirit of enterprises. MAS has carefully designed the PSA to balance the relationship between supervision and innovation, and to supervise and protect service providers, project parties and investors as comprehensively as possible.
For service providers, the Payment Services Act requires all service providers that actually do business in Singapore to apply for a licence. Therefore, service providers who are preparing to enter or have already entered the Singapore market need to re-examine their products and services carefully and apply for licenses in strict accordance with the requirements. Singapore regulators attach great importance to anti-money laundering and counter-terrorism financing, and service providers need to submit relevant reports to the MAS on a regular basis. PSA has provided clear and detailed requirements for service providers to facilitate service providers' business operations, and formal service providers definitely have a supportive attitude to the Payment Services Act.
For the project party, the Singapore regulator's attitude has always been very friendly, encouraging innovation and cooperation. MAS has launched a "sandbox system", which aims to provide a good environment for project parties to innovate and relax regulatory requirements to a certain extent. The Payment Services Act includes payment digital currencies under supervision, but makes no requirements for functional digital currencies.
For investors, MAS does not make restrictions, but it will give risk warnings and strengthen public financial education to ensure that the public is aware of the risks of digital currencies. The Payment Services Act will protect investor funds and improve the user experience by preventing and controlling the loss of customer funds and addressing the lack of interoperability between different payment solutions.
The "Payment Services Act" has filled Singapore's regulatory gap in many payment service scenarios, and has clear regulatory requirements for new things such as payment-type digital currencies, which is of great significance for improving Singapore's regulatory policy in the payment field. Regulatory policy is an important factor that determines the development direction of the blockchain industry. The blockchain industry still belongs to an emerging industry. The government should not over-regulate blockchain technology to prevent stifling innovation. Relatively mild supervision will bring space for the development of blockchain technology. After the "Payment Services Act" was enacted, it was attracted by this clear and stable policy. It is expected that more and more digital currency service providers will come to Singapore to carry out related businesses in the future, which is beneficial to the rapid development of the Singapore digital currency industry. The development of the blockchain industry will also play a catalytic role.