MAS holding second consultation on proposed single licensing regime for payment activities with calibrated risk-based regulatory approach

Image credit: MAS (From Consultation Paper on the Proposed Payment Services Bill, page 12)

The Monetary Authority of Singapore (MAS) has launched a second consultation on its proposed payments regulatory framework, known as the Payment Services Bill (the Bill). The public consultation will run from 21 November 2017 to 8 January 2018.

The Bill will streamline the regulation of payment services under a single legislation, expand the scope of regulated payment activities to include virtual currency services and other innovations, and calibrate regulation according to the risks posed by these activities. 

Last year, MAS had sought public feedback on the scope of the proposed payments regulatory framework. MAS has considered and responded to the feedback received.

When the new Bill is enacted, payment firms will only need to hold one licence under a single regulatory framework to conduct any or all of the specified payment activities. There will be three classes of licences that an entity can apply for under the Bill. A payment service provider may apply to be a a) Money-Changing Licensee; b) Standard Payment Institution, or c) Major Payment Institution.

The single licence will permit a licensee to undertake specific activities as set out in its licence. Multiple licences will not be required for different payment activities. If the licensee conducts more payment activities than originally applied for, it must seek MAS’ approval to conduct other payment activities.

Only payment activities that face customers or merchants, process funds or acquire transactions, and pose relevant regulatory concerns will need to be licensed.

The new framework will expand the scope of regulation to include domestic money transfers (e.g. transferring money through payment kiosks), merchant acquisition (e.g. acquiring transactions through a point-of-sale terminal or online payment gateway), and the purchase and sale of virtual currencies.

MAS wants to ensure that the expanded scope of regulation is not onerous. To do so, the Bill will differentiate regulatory requirements according to the risks that specific payment activities pose rather than apply a uniform set of regulations on all payment service providers.

For instance, MAS proposes to exclude smaller entities from requirements on technology risk, user protection, and interoperability requirements, and only subject them to AML/CFT and general requirements.

The Bill will empower MAS to regulate payment services for money-laundering and terrorism financing risks, strengthen safeguards for funds belonging to consumers and merchants, set standards on technology risk management and enhance interoperability of payment solutions across a wider range of payment activities. 

MAS is seeking comments on 23 questions in the consultation document, on issues such as  whether the definitions of e-money and virtual currency accord with industry understanding of these terms and whether the description of the activities excluded from financial regulation is sufficiently clear and whether more activities should be excluded.

Other matters being explored include the proposed single licence structure and and whether this approach is beneficial for potential licensees, the proposed capital and security deposit requirements, the AML/CFT (anti-money laundering/ countering the financing of terrorism) requirements and the interoperability powers (MAS is proposing to include in the Bill powers to mandate any Major Payment Institution to adopt a common standard to make widely used payment acceptance methods interoperable. One example of such a measure is to mandate that payment account issuers and merchant acquirers adopt a standardised QR code.)

MAS is also inviting payment users to give feedback on the proposed payment user protection measures.

MAS Managing Director, Mr. Ravi Menon said, “We want to put in place a forward-looking regulatory regime to encourage wider adoption of secure e-payment solutions. The novel, activity-based licensing framework aims to right-size regulatory requirements to address the risks posed by specific payment activities. This will help to protect consumers and merchants while creating an environment conducive for innovation in payment services.” 


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