E-WALLET and cryptocurrency players welcomed - with some degree of reservation - the new regulatory framework for payment services that was unveiled on Monday.
The framework, which will expressly regulate cryptocurrency players for the first time, and place e-wallet players under tighter supervision, was tabled for a first reading in Parliament as part of the Payment Services Bill.
Ong Ye Kung, Minister for Education and board member of the Monetary Authority of Singapore (MAS), introduced the Bill and said it was envisioned to provide a more conducive environment for innovation in payment services, while ensuring that the risks across the payments value-chain are mitigated.
Currently, MAS regulates various types of payment services under the Payment Systems (Oversight) Act (PS(O)A) and the Money-Changing and Remittance Businesses Act (MCRBA), which were enacted in 2006 and 1979 respectively.
The Bill will streamline payment services under a single, activity-based legislation by combining the PS(O)A and the MCRBA. Taking into account new developments in payment services and their various risks, the Bill will expand the scope of regulated activities to include digital payment token (cryptocurrency) dealing or exchange, e-money issuance and money transfer.
Grab and Razer, which run e-wallets GrabPay and Razer Pay respectively, expressed support for the Bill. A Grab spokesman said that the Bill will facilitate increased innovation in payment services, which will boost confidence in and adoption of e-payments - while a Razer spokesman noted that the Bill will create a safer and more rewarding environment for e-wallets.
Lukas May, head of banking at money transfer service TransferWise, told The Business Times: "We welcome the overall aim of the Bill to bring a more activity-based approach to regulating payment companies in Singapore. This means that whether you are a bank, or a fintech, you must follow the same set of rules with regard to payments, especially in keeping customer money safe and preventing money laundering."
Mr May, however, disagreed with two proposals set forth in the Bill. The first is the ban on cash withdrawals from stored-value balances, a restriction that does not apply to banks. He said: "If customers of banks can make cash withdrawals, why should it be different for customers of Major Payment Institutions (MPIs)? This brings unnecessary friction to customers."
MPIs are defined under the new framework as firms that conduct any licensable activity that crosses S$3 million a month or two or more activities combined (excluding e-wallets) that cross S$6 million a month, or hold an e-money float that averages more than S$5 million daily over a year.
Mr May's second gripe is with the imposition of a cap on personal stored-value balances or e-wallets. The prescribed stock and flow caps are S$5,000 and S$30,000 respectively, which, according to MAS, are meant to protect customers by limiting their potential loss.
Mr May said: "This cap is not needed from a risk perspective because all customer funds must be safeguarded. This means that customer money is not at risk, unlike with banks, which use deposits to make loans. Therefore, imposing a cap brings unnecessary inconvenience to customers. It also discourages innovation and competition."
Samson Leo, co-founder of payment gateway firm Xfers, also objected to the cap. He told BT: "It would be better if different limits are imposed to different licensees rather than have a broad stroke limit for all. For instance, limits that apply to EZ-link cards should be different from that applied to DBS PayLah! or GrabPay, as they are used very differently."
For the first time, cryptocurrency players that buy or sell digital payment tokens, or who provide a platform to allow users to exchange digital payment tokens in Singapore, will be subject to regulation. These players will have a six-month grace period to comply with the Bill.
Sherwin Lee, legal counsel for XSQ, a firm that does blockchain infrastructure development and cryptocurrency mining, said that regulations are welcome because it gives more clarity to cryptocurrency players and more confidence to the market.
"Hopefully, this will facilitate the opening of the bank accounts for cryptocurrency firms," he told BT.
Under the new framework, a payment service provider needs to hold only one licence, which must be of a class that corresponds to the risks posed by the scale of payment services provided, said the MAS.
There will be three classes of licences: Money-changing Licensee; Standard Payment Institution (SPI); and MPI. Money-changing licensees can conduct only money-changing services. SPIs may conduct any combination of regulated activities that are below specified thresholds. Only MPIs may carry out payment services above specified thresholds.
Risk mitigating measures will then be tailored to the specific payment services that a licensee provides - to better safeguard customer and merchant monies, ensure adequate controls against money laundering and terrorism financing risks, reduce fragmentation, and strengthen technology and cyber standards in the payments space, MAS added.
Stephanie Magnus, head of financial institutions for the Asia-Pacific at Baker McKenzie, said: "Careful thought was put into ensuring that the risks that the Bill wishes to address were weighed to ensure that companies are not over-regulated.
"This can be seen in the introduction of the concept of SPI vs MPI, where SPIs with lower transaction volumes will be subject to lighter touch regulation".
Ow Kim Kit, a partner at Bird & Bird ATMD, praised the modular and activity-based approach of the Bill. "It's telling the innovators that we're not here to kill you, but to evolve with you. It's important for Singapore, as a financial centre, to move in tandem with alternative payment services. Otherwise, the country could be confronted with many systemic risks."
Adrian Ang, a partner at Allen & Gledhill, said that the Bill is a welcome step forward for the payments industry, in that it will better protect customers when they are using payment services. "The Bill ties in nicely with Singapore's push towards a cashless society."