On 25 August 2016, the Monetary Authority of Singapore ("MAS") issued a consultation paper proposing changes to streamline the regulatory framework and governance model for Singapore's payments and remittance landscape. This has come shortly after a speech by MAS Managing Director Ravi Menon announcing moves to help turn Singapore into an electronic payments society. It is expected that the present consultation paper will be the first of a series of public and industry consultations by MAS on the subject.
Proposed Payments Framework
Presently, the regulatory framework for payments and remittance services is set out in two pieces of legislation – namely the Payment Systems (Oversight) Act ("PSOA") and the Money-changing and Remittance Businesses Act ("MCRBA"). The PSOA governs systemically and system-wide important payment systems designated as Designated Payment Systems ("DPS"), as well as stored value facilities ("SVFs"). On the other hand, the MCRBA governs remittance businesses and money-changers in Singapore.
Financial technology is driving transformation across the entire financial services industry, and with particularly significant impact in the payments and remittance space. With the emergence of new service providers and disparate business models, the lines that have traditionally distinguished the different types of players in the payments and remittance ecosystem have been blurred. For instance, payment service providers may have difficulty understanding what regulatory rules apply to their businesses and how they would be regulated by MAS. At the same time, the increasing complexity of payments systems and their increasingly globalised usage have led to increased concerns over cyber-security, which would in turn impact on overall consumer confidence in international payments generally.
In an effort to create a more calibrated, flexible and forward-looking regulatory framework, MAS has proposed to combine the regimes of the PSOA and the MCRBA into a single framework ("the Proposed Payments Framework") that will provide for the licensing, regulation and supervision of all providers of payments services, including SVFs holders, remittance companies, and virtual currency intermediaries. In addition to a streamlined licensing regime, the Proposed Payments Framework also aims to enhance consumer protection, access, and corporate governance within the payments services industry. Emerging risks such as money laundering, terrorist financing and cyber-security would also be addressed through risk-based regulatory requirements that would be spelt out in the Proposed Payments Framework, and calibrated according to specific risks associated with the various payment activities. Payments systems that are sufficiently large, and that pose systemic or system-wide risks will continue to be designated and subject to close supervision, as is currently the case under the PSOA.
MAS has proposed that the Proposed Payments Framework will work on a modular licensing system, in which regulatory requirements will apply to an entity based on the activities carried out by such an entity. Under the Proposed Payments Framework, payment service providers will only be required to apply for a single licence covering the specific payment activities which they intend to conduct. MAS has indicated that it is currently envisaged that the licensing requirements would apply only to payment service providers that are locally established.
With particular regard to the banking sector, the proposal is that banks will continue to be exempted from having to be licensed to conduct payment activities. This would be consistent with the existing treatment of banks under the MCRBA. However, banks will have to comply with all applicable requirements under the Proposed Payments Framework in relation to their payments activities, in the interest of establishing a level playing field between them and specialist payment service providers.
(i) Scope of Activities
MAS has proposed that the scope of the Proposed Payments Framework would cover the following payment activities:
- Issuing and maintaining payment instruments, such as payment cards, payment accounts, electronic wallets, and cheques;
- Acquiring payment transactions, such as physical and online merchant acquisition services, merchant aggregators, and master merchants;
- Providing money transmission and conversion services without an underlying exchange of goods and services, such as domestic and in-bound/out-bound cross-border remittance services, currency-conversion services, and virtual currency (e.g. Bitcoin) intermediation services;
- Operating payments communication platforms, such as payment gateways, payment processors, and kiosks;
- Providing payment instrument aggregation services, such as payment card aggregation and bank transaction account aggregation;
- Operating payment systems which facilitate the transfer of funds through processing, switching, clearing, and/or settlement of payment transactions, such as operators of automated clearing house, domestic and international schemes and/or payment switches and ATM switches; and
- Holding SVFs, such as prepaid cards running on international card scheme networks, prefunded electronic wallets and offline SVFs (e.g. transport cards).
Within the present consultation paper, broad outlines of each of the above payment activities have been provided. More detailed legal definitions, as well as the regulatory requirements and exemptive carve-outs applicable in each case, will be addressed in a subsequent round of public consultation, after considering the initial round of public feedback.
Proposed National Payments Council
In a report on Singapore's payments landscape that MAS had commissioned, KPMG noted that while there is presently a range of well-established payment systems locally, the general perception is that Singapore's payments landscape remains fragmented with a lack of interoperability among the various payment solutions. As such, MAS is also proposing to establish a single governance structure in the form of a National Payments Council to foster innovation, competition and greater collaboration among the different groups of stakeholders in the payments industry.
MAS has proposed that the Chairman of the National Payments Council will be a representative from MAS. In terms of board representation, MAS has proposed that the National Payments Council Board consists of equal representation from both users (i.e. demand-side) and providers (i.e. supply-side) of the payments ecosystem. Members of the Board of the National Payments Council shall hold a position of CEO or its equivalent, and will be appointed for a fixed term, based on their individual competency, good public standing, skill-sets and experience in their respective industry. With regard to voting powers, MAS has proposed that each Board member be entitled to one vote and that resolutions of the National Payments Council Board be passed by majority approval. MAS may exercise its casting vote where a consensus cannot be reached, and would also have the power to veto any decision which is deemed detrimental to the public, payments industry or wider government policy related to payments.
MAS has said that it is considering the various possible models for ownership of the National Payments Council, in particular whether it should be publicly or privately owned. MAS has also said that the proposed National Payments Council is likely to be established as a legal corporate body that can enter into contracts and acquire property in its own name.
Broadly, the proposed objectives and responsibilities of the National Payments Council would include:
- Governance and Stakeholder
- A forum where views of key stakeholders from both the supply-side and demand-side of the payments ecosystem can be heard and represented;
- Engage the payments industry to set and achieve strategic objectives including co-ordination of education, marketing, and incentive programmes;
- Identify, monitor and enforce payment system standards, such as for payment system access and interoperability; and
- Govern payment systems that facilitate fund transfers or payment settlements.
- Coordination and Implementation
- Manage, coordinate and execute industry payments projects to improve payments ecosystem;
- Promote collaboration and broad industry consultation in retail payments strategy;
- Promote and lead public education programs, campaigns and roadshows;
- Promote regional payment initiatives; and
- Drive electronic payments adoption.
- Research and Surveillance
- Manage, coordinate and execute industry payments projects to improve payments ecosystem; and
- Promote collaboration and broad industry consultation in retail payments strategy.
- Advisory, Policy, and
- Update MAS on key issues and emerging trends in the payments landscape;
- Advise MAS on matters relating to policy and supervision of payment service providers;
- Draft policy guidance papers and business practices for payment service providers;
- Assist MAS in implementing policies relating to payments, and enforce compliance by payment service providers;
- Develop strategies and policies to address gaps in retail payment product and service provision and drive migration away from paper-based payment instruments and processes; and
- Assess, endorse, and enforce best practices and international payments industry standards.
MAS has also proposed that the National Payments Council should take over the role currently assumed by the Singapore Clearing House Association ("SCHA"), in managing clearing services for its members.
It is also proposed that the National Payments Council should be empowered to establish by-laws, rules and regulations relating to the payment systems that it would govern. This could extend to:
- Requiring system enhancements and implementation of new standards;
- Determining membership fees;
- Establishing guidelines and policies relating to pricing and interoperability;
- Controlling strategic projects that are aligned with the National Payments Council's mandate and objectives; and
- Setting up taskforces to address specific retail payments related issues.
MAS is also specifically inviting comments on the possibility of conferring limited enforcement powers on the National Payments Council (such as issuing advisories and reminders).
The public consultation period ends on 31 October 2016.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.