navigating the payment services act 2019 the … · payment services act 2019 (psa) –licensable...

ASEAN | CHINA | MIDDLE EAST

WongPartnership LLP (UEN: T08LL0003B) is a limited liability law partnership registered in Singapore under the Limited Liability Partnership Act (Chapter 163A)

Navigating the

Payment Services Act 2019

27 September 2019

ELAINE CHAN

2 This presentation is for general information only and does not constitute legal advice, Please seek specific legal advice before acting on the contents set out herein.

Regulatory Drivers

Need for New

Regulation

Fintech Innovation

• Surge in Fintech innovation

• Emergence of innovative forms of payment services

Entry of New Players

• Start-ups, Retail Players, FIs, etc

• Convergence of payment services with retail services Increased Risks

• AML/CFT Risks

• User Protection

• Technology Risks

• Interoperability

- Regulate activities with clear retail

payment nexus

- Prevention of shadow banking

This presentation is for general information only and does not constitute legal advice, Please seek specific legal advice before acting on the contents set out herein.

Payment Services Act 2019 (PSA) – Licensable Services

Account

issuance

service

Issuing of payment accounts to any person Singapore, such as a bank account, an

e-wallet, credit card, debit card or stored value card or providing any service

required for the operation of a payment account.

Domestic

money transfer

service

The service of accepting money for executing or arranging for executing of any

payment transactions to a payer and payee in Singapore, through or to a payment

account.

Cross-border

money transfer

service

The service of accepting money in Singapore for transmission to a person outside

Singapore or receiving money from outside Singapore for transmission to a

person in Singapore

Merchant

acquisition

service

The service of accepting and processing payment transactions for a merchant

under a contract between the service provider and the merchant, which results in

a transfer of money to the merchant.

Currently regulated

under Money-changing

and Remittance

Businesses Act

(MCRBA) only for

outbound remittances

E-money

issuance

service

Issuing e-money to any person to make payment transactions including payments

to merchants or for transfers to another person etc.

Digital Payment

Token

Service

Buying or selling digital payment tokens, or operating a digital payment token

exchange.

Money-

changing

service

Buying or selling foreign currency notes in Singapore.

Currently regulated

under Payment Systems

(Oversight) Act (PSOA)

only for payments for

goods or services

Currently regulated

under the MCRBA


1. Is the service

regulated?

Business as

usual

2. Do exclusions

apply?

Business as

usual

3. Do class

exemptions

apply?

Business as

usual

Yes

• Payment Services – Part

1, First Schedule, PSA

• Incidental Payment

Services – Section 5,

PSA; disapplication of

Chinpo Shipping Co

(Pte) Ltd v. Public

Prosecutor (High Court)

[2017] 4 SLR 983

• Services that are not

Payment Services –

Part 2, First

Schedule, PSA

Yes YesNo

• Payment Services

Regulations (PSR)

E.g. Regulation 29 –

Exemption from the

requirement to hold

a Standard Payment

Institution licence

No 4. Apply for

licence

No


Classes of Licences

• Three Classes of Licences

– Money-Changing Licence

– Standard Payment Institution (SPI) Licence

– Major Payment Institution (MPI) Licence

• A service provider must hold a MPI licence to conduct paymentservices in excess of the following thresholds:

– the daily average e-money float, over a calendar year, exceeds S$5 million;

– the monthly average value of payment transactions that are accepted,processed or executed, over a calendar year, exceed S$3 million for a singlepayment service; or

– the monthly average value of payment transactions that are accepted,processed or executed, over a calendar year, exceed S$6 million for two ormore payment services combined.

• A holder of a SPI licence must not exceed these thresholds.


• Restriction on consumer

lending;

• Safeguarding of e-money

float or funds in transit;

• Limit on value of e-money

held in personal payment

account;

• Limit on value of e-money

transferred out of a personal

payment account;

• Prohibition against

withdrawal of Singapore

dollars, etc.

Apply for

licence?

Any grace

period for

licence

application?

Any

grandfathering

of existing

licence or

exemption?

• Payment Services

(Exemptions For A

Limited Period Of

Time) Regulations

• Section 122(1) of the PSA –

remittance licence holders

under the MCRBA

• Section 122(3) of the PSA –

approved holder of widely-

accepted SVF under PSOA

Transitional Arrangements and Grandfathering of Existing Licences

New licensees

Grandfathered

licensees

• Business conduct

requirements and risk

mitigation measures

would apply upon the

commencement of

PSA, except where a

grace period applies.

• Business conduct

requirements and risk

mitigation measures

would apply upon the

receipt of the licence.

Yes

Yes

Do exclusions

or exemptions

apply?

NoAre there business

conduct requirements or

risk mitigation measures

that would apply?


Regulatory requirements Only applies to Major Payment Institutions

Safeguarding of E-money

Float and Funds-in-

Transit

A MPI must safeguard customer funds:

• by depositing the money in a trust account;

• by a guarantee for the amount of the money; or

• by an undertaking to be fully liable to the customer for the money,

with a safeguarding institution (i.e. licensed bank, approved merchant

bank, licensed finance company).

Restriction on value of e-

money stored in personal

payment accounts

The value of e-money contained in a personal payment account (e.g.

e-wallet) issued by a MPI must not exceed $5,000.

Restriction on value of e-

money that can be

transferred out of a

personal payment account

The value of e-money transferred out of a personal payment account

issued by a MPI must not exceed $30,000 in one year.

New Business Conduct Requirements


Prohibition /

RestrictionsStandard Payment Institution Major Payment Institution

Prohibition against

withdrawal of e-

money and

exchanging for

Singapore dollars

A licensee that provides account issuance service is prohibited from:

• allowing the withdrawal of e-money issued in Singapore from a payment

account issued to a Singapore resident or person not determined to be

resident outside Singapore; and

• exchanging e-money for SGD in Singapore.

Prohibition against

grant of credit facility

A licensee is prohibited from carrying on a business of granting any credit

facility to any individual in Singapore.

Prohibition against

lending of customer

money

A licensee that is entitled to and provides e-money issuance service is

prohibited:

• from lending any customer money; and

• using any customer money or any interest earned on such money, to

finance any activity of any of its business.

New Business Conduct Requirements


Risk Mitigation Measures

Regulatory

requirementsStandard Payment Institution Major Payment Institution

Prevention of money

laundering and

countering the

financing of terrorism

(“AML/CFT”)

requirements

The AML/CFT requirements that will be imposed on licensees include:

• identification and verification of customer and beneficial owner;

• ongoing monitoring including transactions monitoring;

• screening of customers for ML/TF concerns; and

• suspicious transaction reporting and record keeping.

MAS' Notice on Cyber

Hygiene

Licensees are expected to comply with the MAS' Notice on Cyber Hygiene

that sets out basic cyber security measures that PSA licensees must

implement to establish baseline defences against cyber threats (which is

targeted to commence in July 2020).

Business Continuity

Management and

Outsourcing

MAS' Guidelines on Business Continuity Management and Guidelines on

Outsourcing will apply to all licensees under the PSA.

Technology Risk

Management

MAS' Guidelines on Technology Risk Management would apply to all

licensees under the PSA, but MAS' Notice on Technology Risk

Management would not apply.

ASEAN | CHINA | MIDDLE EAST


Is the service regulated?



• Account issuance service

– the service of issuing a "payment account" to any person in Singapore;

– any service relating to any operation required for operating a payment

account, including:

any service (other than a domestic money transfer service or a cross-border

money transfer service) that enables money to be placed in a payment account;

or

any service (other than a domestic money transfer service or a cross-border

money transfer service) that enables money to be withdrawn from a payment

account.



• Account issuance service

– "Payment account" means, among others, any account, or any device or

facility (whether in physical or electronic form), which is held in the name,

or associated with the unique identifier, of any person, and is used by that

person for the initiation of a payment order or the execution of a payment

transaction, or both.

"payment transaction" means the placing, transfer or withdrawal of

money, whether for the purpose of paying for goods or services or for

any other purpose, and regardless of whether the intended recipient of

the money is entitled to the money.


Example 1 – E-wallet or Mobile Wallet

Create

account

Top up account

with fiat currency

Payer/Consumer MerchantsE-Wallet or

Mobile WalletPayment for goods

and services

$

Account

Issuance

Service

Other

payments

Payee

$


Example 2 – Payment Aggregator – Payer's Account

Create

Account

Payer/

ConsumerPayer's in-app

accountlinked

to

Online Payment Aggregator

Payer's

credit/debit

cards

Issuing Bank

Account

Issuance

Service

Payment

Aggregator

Payment for

goods &

services

Merchants



• E-money issuance service

– means the service of issuing e-money to any person for the purpose of

allowing a person to make payment transactions.

– "e-money" means any electronically stored monetary value that:

is denominated in any currency, or pegged to any currency;

has been paid for in advance to be used to make payment transactions through a

payment account;

is accepted by a person other than its issuer; and

represents a claim on the issuer.


Example – Credits Stored in Mobile Wallet

Download AppScan QR Code for Payment

Top up with

fiat currency

Credits stored on

in-app mobile wallet

Payer/Consumer

Payee

$

Merchants

(physical

premise)

Merchants

(mobile app)E-Money

Issuance

Service


Is it possible for stablecoins to be regarded as e-money?

Elements of E-money Typical Features of Stablecoins

Denominated in or

pegged to a currency

• Value of the tokens linked to a basket of fiat currencies,

backed by a reserve including bank deposits and

governments securities.

Paid for in advance to be

used to make payment

transactions

• Users must pay for the tokens with fiat currency which are

deposited into the reserve.

Accepted by a person

other than its issuer• The tokens may be accepted by other parties as payment.

Represents a claim on the

issuer

• Confers on authorised resellers the right of repayment from

the reserve.


• MAS Guide to Digital Token Offerings (Case Study 11):

– a company offers digital tokens which are pegged to fiat currency;

– the digital tokens are backed by fiat currency reserve such as bank

deposits; and

– token-holders are able to exchange such tokens for fiat currency at the

value of the peg,

such digital tokens may be considered as "e-money".



• Merchant acquisition service

– Any service of accepting and processing a payment transaction

for a merchant:

under a contract between the service provider and the merchant;

which results in a transfer of money to the merchant regardless of

whether the service provider comes into possession of the money in

respect of the payment transaction; and

the merchant carries on business or is established in Singapore or

where the contract for provision of the service between the merchant

and service provider is entered into in Singapore.



Example 1 – E-wallet or Mobile Wallet

Create

account

Top up account

with fiat currency

Payer/Consumer MerchantsOperator of E-Wallet

or Mobile WalletTransfer of monies

to merchants

$$

Merchant

Acquisition

Service

Contractual agreement

Operator of e-wallet or mobile wallet to accept and process

payment transactions on behalf of merchants


Example 2 – Payment Aggregator

Payer/ConsumerTransfer of monies

to online merchants

Payment Aggregator collects

monies from issuing bank or

operator of payer's credit card,

debit card, e-wallet

Payment via

credit card, debit

card, e-wallets

Contractual agreement

Payment aggregator to accept and process

payment transactions on behalf of online

merchants

Online

Merchants

Merchant

Acquisition

Service


• Domestic money transfer service

– The service of accepting money for executing, or arranging for the

execution of any of the following payment transactions between a payer

and a payee in Singapore (where neither the payer nor the payee is a

financial institution):

a payment transaction executed from, by way of or through a payment account;

a direct debit (including a one-off direct debit) through a payment account;

a credit transfer (including a standing order) through a payment account; or

accepting any money from any person for transfer to the payment account of a

different person.



• Cross-border money transfer service

– any service of accepting money in Singapore, whether as principal or

agent, for the purpose of transmitting, or arranging for the transmission of,

the money to any person outside Singapore; or

– any service of receiving any money from outside Singapore for, or

arranging for the receipt of any money from outside Singapore by, any

person in Singapore.



Example 1 – Payment Aggregator

Payer/Consumer

Transfer of monies

to online merchants

Payment Aggregator collects

monies from issuing bank or

operator of payer's credit card,

debit card, e-wallet

Payment via

credit card, debit

card, e-wallets

Merchants in

Singapore

Merchants

overseas

Domestic money

transfer service

Cross-border money

transfer service


Example 2 – Platform offering products of different merchants

Payer/Consumer

in Singapore Platform – Merchant

AggregatorPayment for goods and

services

$

Merchants in

Singapore

Merchants

overseas

Domestic money

transfer service

Cross-border money

transfer serviceQuery: Is the platform a reseller or commercial agent?

Transfer of monies

to merchants


• A platform may not be conducting payment services

where it is:

– acting as a re-seller of goods or services (as principal) in the sale

or supply of goods or services purchased from a third party; and

– the intended recipient of the funds paid by the customer.

Reseller Arrangements


Commercial Agent Exclusion – Paragraph 2(a), Part 2

of First Schedule, PSA

• The service of executing a payment transaction is not a payment

service, if:

– performed by a commercial agent, i.e. a person that carries on a

business of acting as an authorised agent for another person, for the

purposes of negotiating or concluding the sale or purchase of goods or

services on behalf of that other person;

– the commercial agent is authorised to negotiate or conclude the sale or

purchase of goods or services; and

– the commercial agent acts on behalf of the payer or the payee, as the

case may be.


• Digital payment token service

– any service of dealing in digital payment tokens; or

– any service of facilitating the exchange of digital payment tokens;



• A “digital payment token” means any digital representation of value

(other than an excluded digital representation of value) that –

– is expressed as a unit;

– is not denominated in any currency, and is not pegged by its issuer

to any currency;

– is, or is intended to be, a medium of exchange accepted by the

public, or a section of the public, as payment for goods and

services or for the discharge of a debt; and

– can be transferred, stored or traded electronically.



• An intermediary is “dealing in” digital payment tokens where it buys

and sells that digital payment token in exchange for money or any

other digital payment token (whether of the same or a different type).



User A

Sells cryptocurrency

to platform for fiat

currency

Example – Crypto platforms which buy or sell

cryptocurrency for fiat currency

Crypto Platform

Platform buys cryptocurrency

from user A for fiat currency

Platform sells cryptocurrency

to user B for fiat currency

Buys or sells cryptocurrency

for fiat currency

User B

Buys cryptocurrency

from the platform for

fiat currency


• An intermediary is “facilitating the exchange of digital payment tokens”where it establishes or is operating a digital payment token exchange where:

– for the purposes of an offer or invitation (made or to be made on that digital paymenttoken exchange) to buy or sell any digital payment token in exchange for any moneyor any digital payment token, such entity comes into possession of any money orany digital payment token, whether at the time that offer or invitation is made orotherwise.

• A “digital payment token exchange” generally means a place or facility(electronic or otherwise), where:

– offers or invitations to buy or sell digital payment token in exchange for any money or anydigital payment tokens are regularly made on a centralised basis; and those offers orinvitations are intended, or be expected to result in the acceptance of those offers.

• NOTE: It does not include, any place or facility (electronic or otherwise) usedexclusively by one person to make offers or accept any offer, to buy or selldigital payment token in exchange for any money or any digital payment token.



Example – Trading Platform for Cryptocurrency Pairs

User A User B

Trading Platform

User A's account User B's account

Performs

reconciliation

Cryptocurrency stored with the

trading platform

Order to

buy/sell tokenOrder to

buy/sell token


Key Takeaways

• PSA is expected to commence in January 2020

• To consider business models against the scope of licensable

activities

– rely on exclusions or exemptions

– apply for licence

– comply with ongoing obligations


ELAINE CHANPartner

Financial Services Regulatory

Practice

d +65 6416 8010

e [email protected]

CONTACT US


THANK YOU

navigating the payment services act 2019 the … · payment services act 2019 (psa) –licensable...

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