Upgraded legislation creates an enhanced regulatory framework for the new age of payments, including e-money and digital payment tokens. 

By Farhana Sharmeen and Simon Hawkins

After much anticipation, and following consultations with the industry at large, the game-changing Payment Services Act 2019 (PSA) has finally become operational.

The PSA, which came into effect on 28 January, is the omnibus legislation dealing with payment services and systems, which adopts an activity-based licensing framework and risk-based regulatory structure. The new legislation has been designed in recognition of the different kinds of payment services that are currently available, and with a view to anticipating the types of payment services that are likely to develop in the future.

The PSA repeals the Money-changing and Remittance Businesses Act and the Payment Systems (Oversight) Act, and brings into the PSA the matters covered under those Acts. The PSA also incorporates new types of payment services, such as digital payment token services, cryptocurrency exchanges, and e-wallets, within the Monetary Authority of Singapore’s (MAS’) regulatory oversight.

Regulatory framework and licensing

The PSA contains two regulatory frameworks: a designation framework for significant payment systems and a licensing framework for payment service providers (PSPs).

The designation framework enables the MAS to designate and regulate systemically important payment systems, and the licensing framework sets out the basis on which the MAS will supervise PSPs providing one or more of the following seven categories of payment services:

Under the PSA licensing framework, three classes of licences are available for PSPs:

Transition and implementation

The PSA is subject to a transition period of one year. To support the transition to the PSA, the MAS has initiated the Payments Regulatory Evaluation Program (PREP) to help payment services firms connect with legal services providers to obtain advice on licensing and compliance with the PSA. The PREP will run for one year, consistent with the one-year transitional period that applies in respect of the PSA. Latham & Watkins is proud to be one of the law firms that is participating in the PREP.

In the interests of better “future proofing” the PSA, the MAS also continues to consult on certain aspects of the PSA. Most recently, two MAS consultations sought to solicit views on the following issues in respect of the PSA:

  • Aligning the PSA with the FATF standards applicable to DPT service providers (g., expanding the scope of DPT service providers’ activities to include: (i) transfer of DPTs; (ii) provision of custodial wallets for or on behalf of customers; and (iii) brokering of DPT transactions). See Consultation on the Payment Services Act 2019: Proposed Amendments to the Act.
  • Reviewing the scope of the PSA definitions of money, e-money, and DPTs, as well as the regulation of payment services based on these forms of payment. This consultation was issued in part due to the increased level of international regulatory scrutiny and interest in respect of so-called stablecoins (e., cryptocurrencies that seek to reduce price volatility by linking their value to an asset or pool of assets). For example, the MAS consultation sought views on whether a stablecoin that derives its value from a basket of fiat currencies should be capable of characterisation as e-money under the PSA, and whether holders of DPTs should benefit from some form of user protection measures. See Consultation on the Payment Services Act 2019 – Scope of E-money and Digital Payment Tokens.

These consultations closed for public comments on 28 January, and the MAS will now review and consider the responses received. Subsequent amendments to the PSA may follow in due course.

The PSA heralds an exciting time for the rapidly evolving payment services landscape and will undoubtedly enhance the regulatory framework for payment services in Singapore, which, in turn, may foster greater confidence in the use of e-payments and give consumers stronger protection.