Risks and security issues crop up as payment systems develop and move toward digital platforms. Digital payment services become an important issue with an increasing number of digital banking services and firms springing up and applying for digital banking licenses.
The Money-changing and Remittance Businesses Act, along with the Payment Systems (Oversight) Act, was repealed with the commencement of the renewed Payment Services Act on 28 Jan 2020.
Here are 4 ways consumers like you and me will benefit from the new regulations in the Payment Services Act.
#1 LOSS OF CUSTOMERS' MONEY
The new Bill will recognise new activities under services that the Monetary Authority of Singapore (MAS) regulates.
For instance, customer monies entrusted to payment service providers may be lost when the service provider becomes insolvent. The Bill now includes these 3 means of safeguarding customer monies from loss through institutions' insolvency:
- An undertaking or guarantee by a bank in Singapore or prescribed financial institution to be fully liable to the customer for such monies
- A deposit in a trust account; or
- Safeguarding in another manner that may be prescribed by the MAS.
The definition of e-money will also now include e-wallets, going beyond stored value or pre-paid services such as public transport cards. With this inclusion, e-money issuers now have an obligation to protect the value held in major e-wallets for consumers and merchants.
On top of these measures, 3 classes of licences have been introduced -- Money-Changing Licensees, Standard Payment Institutions, Major Payment Institutions.
These classifications differentiate the services providers so that they remain sufficiently regulated according to the type of service they offer, without compromising new innovation of payment services in the financial market.
At the same time, consumers can make informed decisions on which payment service or provider best suit their needs.
#2 MONEY LAUNDERING / TERRORIST FINANCING RISKS
As the digital financing space grows, money laundering and terrorist financing risks remain a real issue, through illicit cross-border transfers, anonymous cash-based payment transactions, structuring of payments to avoid reporting thresholds or the raising and layering of assets or funds.
As a result, the Payment Services Act now extends MAS regulation over domestic money transfers, merchant acquisition and digital payment token services (otherwise understood as cryptocurrency dealing or exchange services).
Under the new Bill, all providers of digital payment token dealing or exchange services in Singapore have to meet anti-money laundering and counter financing of terrorism (AML / CFT) requirements, whether through Notices or industry guidance issued under MAS.
#3 FRAGMENTATION AND LACK OF INTEROPERABILITY ACROSS PAYMENT SOLUTIONS
MAS has been working to ensure that the many e-payment solutions that have been introduced in Singapore remain interoperable, within an open architecture.
For instance, PayNow is used to make instant payment convenient for consumers and businesses. The service is interoperable and the PayNow feature from the app of one bank can be used to pay someone who is banking with a different institution.
SGQR is also another interoperable feature that allows different e-payment schemes to be accepted via a single, standardised, and unified QR code.
With the Bill, MAS will now have formal powers to mandate the following outcomes:
- A designated payment system operator or major payment institution must allow third parties to access any payment system it operates, with the access regime imposed being fair and not discriminatory
- A major payment institution must participate in a specified common platform or equivalent arrangement to achieve interoperability of payment accounts
- A major payment institution must adopt a common standard to make widely-used payment acceptance methods interoperable.
#4 TECHNOLOGY AND CYBER RISKS
Technology and cyber risks arise when it comes to financial service providers. With the Bill, MAS will have powers to impose technology risk management requirements including cybersecurity risk management requirements on all licensees.
The requirement ensures that there is adequate risk governance and implementation of sufficient controls in areas such as user authentication, data loss protection and cyber-attack prevention and detection.
SMART NATION IN THE MAKING
The Bill is an integral piece in moving Singapore's digital payments landscape forward, especially in the country's journey to becoming a Smart Nation.
These regulations and intended changes will be helpful in safeguarding consumers who make use of these financial service providers.
At the same time, varying the level of regulations imposed according to the different licenses and risk levels help to encourage new players to enter the industry while facilitating innovation and growth in the scene.
While MAS and the government enacts and enforces regulations to keep us safe, as consumers, we can also do our part to be aware of the prevailing risks and only use the services of vendors we trust.
This article was first published in Dollars and Sense.