The requirements under the various licenses are tailored according to the risks that the service provider’s business model and services pose.

The provision of payment services is currently subject to regulation under the Payment Services Act 2019 (PSA). Providers of payment services are required to hold one of three licenses, specifically a money-changing license, a standard payment institution license or a major payment institution license. The requirements under the various licenses are tailored according to the risks that the service provider’s business model and services pose.

Under the Payment Services (Amendment) Bill 2021 passed on 4 January 2021, amendments relating to anti-money laundering and countering terrorist financing (AML/CTF), cross-border money transfer services and digital payment token (DPT) services have been introduced.

Broader Definition of Digital Payment Token Service

Currently, DPT service providers that deal in and facilitate the exchange of DPTs will be required to be licensed under the PSA and be subject to Monetary Authority of Singapore (MAS) AML/CTF regulations when they come into possession of moneys or DPTs. With the new amendments, the definition of DPT service has been significantly widened to include the following services:

Transfer of DPTs and Arrangement of Such Transfers

An entity providing DPT transfers as a service in Singapore will need to be licensed, regardless of where the DPT service provider locates its computing or operating systems, including for keeping its accounts and transaction records.

However, MAS has clarified that it does not seek to regulate entities or persons that are solely involved in purely technical activities such as blockchain mining or the development of software applications.

Safeguarding DPTs or DPT Instruments

This category is aimed at business entities that safeguard DPTs or DPT instruments such as the provision of custodian wallet services for DPTs. The service provider must have control over the DPT or the DPT associated with the DPT instrument. “Control” in this case refers to whether the DPT service provider has the ability to control access to any DPT or to execute transactions involving the DPT.

Facilitating the Exchange of DPTs Without Possession of Money or DPTs by the DPT Service Provider

Service providers that induce or attempt to induce any person to enter into or to offer to enter into any agreement for or with a view to buy or sell DPTs in exchange for money or other DPTs will be included under this category. Examples of such services include the provision of brokerage or exchange services, or software applications that enable users to find counterparties and actively match orders for buyers and sellers of DPTs, without taking possession of the money or DPTs.

Depending on the facts and circumstances of each case, entities involved in general marketing and advertising activities relating to DPTs may not necessarily be subject to the new amendments.

Enhanced Regulatory Powers of MAS Over DPT Service Providers

The powers of MAS to make regulations imposing additional requirements on DPT service providers have been strengthened. MAS may now introduce measures requiring DPT service providers to implement user protections. These regulations could relate to the safeguarding of customer assets held by the DPT service provider, the prescription of the amount or percentage of customer assets held by the DPT service provider, or the disclosure obligations of the DPT service provider to customers.

In addition, MAS has the power to impose measures on prescribed DPT service providers, when necessary or expedient in the interest of the public or a section of the public, Singapore’s financial stability or MAS monetary policy.

Expanded Oversight Over Cross-Border Money Transfer Services

Presently, cross-border money transfer service providers are regulated under the PSA when they accept or receive moneys in Singapore. To deal with the increasingly fluid nature of money laundering and terrorist financing, the definition of cross-border money transfer services has been expanded to include service providers that carry on such a business in Singapore of facilitating cross-border money transfers between entities in different countries where the moneys are not necessarily accepted or received in Singapore.

Broader Definition of Domestic Money Transfer Service

The definition of “domestic money transfer service” currently only covers the situation where both the payer and payee are not financial institutions. This has been broadened to include all situations except where both the payer and the payee are financial institutions.

Prescription of Class of Licensees Subject to Safeguarding Obligations

With the amendments, MAS has the power to prescribe additional classes of licensees or classes of payment services to which obligations to safeguard money received from customers apply.

Wider Application of Duty to Use Reasonable Care Not to Provide False Information to MAS

The PSA provides for a general duty to use reasonable care to ensure that information provided to MAS for the purposes of the PSA or documents lodged with MAS are not false or misleading in any material fashion. This duty is no longer limited to just individuals but to all persons, individuals or otherwise.

Conclusion

MAS has stated that it intends to grant a six-month exemption to entities that are newly regulated under the PSA, as well as to existing PSA-licensed entities that have to change their licenses as a result of the amendments.

For More Information

If you have any questions about this Alert, please contact Leon Yee, Derrick Boo, any of the attorneys in our Singapore office or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.