Singapore Payments Consultation – Considerations for Incumbents and Disruptors.

SINGAPORE, PAYMENTS. Proposals for new legislation and a governing body for payments in Singapore are out for initial public consultation. The Monetary Authority of Singapore (MAS) has invited responses by 31 October 2016. This is the first in a series of consultations on the Proposed Payments Framework (PPF) and the National Payments Council (NPC) and focuses on the scope of PPF and the make-up and remit of the NPC. MAS will consult later on the detailed definitions of proposed licensed activities under the PPF.

The PPF would consolidate existing regulation and regulate (for the first time, in some cases) a raft of payment services-type activities. This ‘permissive’ approach is similar in ethos to that applied in various jurisdictions abroad and is notable departure from the current ‘risk-based’ approach by MAS.

The proposed licensed activities are as follows:

  1. Issuing and maintaining payment instruments, such as payment cards, payment accounts, electronic wallets, and cheques
  2. Acquiring payment transactions, such as physical and online merchant acquisition services, merchant aggregators, and master merchants
  3. Providing money transmission and conversion services, such as domestic and in-bound/out-bound cross-border remittance services, currency-conversion services, and virtual currency intermediation services
  4. Operating payments communication platforms, such as payment gateways, payment processors, and kiosks
  5. Providing payment instrument aggregation services, such as payment card aggregation and bank transaction account aggregation
  6. Operating payment systems which facilitate the transfer of funds through processing, switching, clearing, and/or settlement of payment transactions
  7. Holding stored value facilities such as prepaid cards and prefunded electronic wallets

Naturally, traditional participants in the payments ecosystem, such as, issuers, acquirers and stored value facility operators, would need to seek a licence for one or more activities under the new regime. But the proposals also include newer activities based on the current state of technology, such as payments communications platforms and payment instrument aggregation services. Businesses such as e-commerce platforms or those that are otherwise involved in payments transactions indirectly will need to consider carefully the application of the final legislation.

But incumbents and disruptors alike must remain alert as the PPF and the NPC shift the competitive landscape. A key aim of the first Payments Services Directive (PSD1) in Europe was to break up the banking monopoly over payments services. And the second Payment Services Directive (PSD2) will, among other things, narrow exceptions for e-commerce marketplaces involved in payments transactions and make provision for various payment ‘intermediaries’. Much of the PPF bears comparison to both PSD1 and PSD2 and an understanding of the struggles of European regulators and industry will be valuable for stakeholders in responding to the consultation and/or complying with the final rules.

Taking PSD2 struggles as an example – the directive is currently in its implementation period since coming into force in January 2016 and various key technical standards are yet to be finalised by the European Banking Authority. Incumbents are struggling to get ready to provide API access to intermediaries and there is ongoing noise about the lack of provision for distributed ledger technologies.

A key challenge for MAS will be how to ensure the regulation and governance is practical, adaptive and able to maintain pace with disruptive technologies. The role of the NPC in refining and amending future payments regulation will be a critical factor in achieving the stated aims of the PPF and NPC. The aims to instil greater consumer confidence in the payments ecosystem and allow MAS to address emerging risks such as cybersecurity and interoperability are particularly in focus. The implementation of the proposed reforms will be a useful barometer for the progress of Singapore’s Smart Nation Vision and its aspirations as a nation to become a fintech hub for the region.

Olswang Asia will be hosting a webinar in October on issues arising from the proposals and the consultation.

Christopher Overton

Author: Christopher Overton

Chris is an international TMT lawyer at Olswang based in Singapore, specialising in complex sourcing & logistics, contract process automation, payments, fintech and cloud.

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