Seeking quality legal advice can help companies understand the law’s new regulatory and licensing issues.
When the new Payment Services Act was unveiled, many payment service providers were uncertain as to how this new legal framework will affect their operations. Now that the Act has come into force, fintech firms and e-payment providers have to grapple with increased regulation, new licensing requirements, and tighter risk mitigating measures.
“The Payment Services Act (PS Act) covers a wider array of services and activities [as compared to] the Money-changing and Remittance Businesses Act and the Payment Systems (Oversight) Act,” explained Liang Kok Wong, Joint Managing Director at law firm Tan Peng Chin LLC (TPCLaw).
The old laws were enacted in 1979 and 2006, respectively, and are insufficient to address the changes that have since occurred in the payment services landscape. New payment business models have led to the convergence of payment and remittance services, blurring the lines between activities regulated under these two Acts.
The new types of payment services that are regulated under the PS Act (and which were not regulated under its predecessors) include (a) issuing and maintaining payment cards, payment accounts, electronic wallets, and cheques; (b) acquiring payment transactions, such as physical and online merchant acquisition services, merchant aggregators, and master merchants; (c) providing domestic money transmission and virtual currency intermediation services; and (d) operating payments communication platforms, such as payment gateways, payment processors, and kiosks.
“Technology has transformed Singapore’s payment landscape and we now have a new forward-looking legal framework to regulate payment systems and payment services providers. TPC Law serves and supports innovative and fast-growing fintech startups and businesses who are affected by the recent legislative and regulatory changes,” Wong said.
Apart from closely following the PS Act and its regulations, TPC Law has previously advised on various matters touching on or dealing with blockchain and cryptocurrency.
Understanding the new law
Lin Piah Sim, Director at TPC Law, noted that whilst the PS Act covers a wide range of activities, it also sets out a list of exemptions. “MAS intends to regulate only activities and services that have a direct payments nexus, where the service provider processes funds or acquires transactions for merchants,” he said.
Under the PS Act, licensees are subject to licensing and business conduct requirements, with the PS Act imposing specific risk-mitigating measures on relevant licensees, such as AML/CFT, user protection, interoperability and technology risk management.
“An enterprise which participates in retail payments and services needs to assess its business models and exposure to risks associated with money-laundering/terrorism financing, user protection, interoperability and technology, in order to implement adequate risk mitigating measures as required under the PS Act. A holder of a standard payment institution license also needs to monitor whether it has breached the threshold requiring a major payment institution license,” Sim noted.
To assist payment services providers in seeking legal advice relating to the PS Act, MAS has also launched the Payments Regulatory Evaluation Programme (PREP). “Under PREP, MAS has formulated a sample questionnaire which payment service providers may use as a guide in seeking legal advice. In order to help payment service providers connect to legal firms, MAS has also provided an indicative, non-exhaustive and non-exclusive list of available legal
advisors,” explained Nikki Tay, Associate at TPC Law.
Seeking adequate legal advice is helpful to ensuring compliance with the PS Act. Tay noted that certain fintech firms and e-payment providers may attempt to overcome the legislative framework in the PS Act by leveraging partnerships and piggy-backing on other firm’s licenses and exemptions. “Another trend that may be emerging is aggregator arrangements whereby many service providers work together using one platform provider,” she added.
Consumer protection (with implications for data protection and payment usage) has been on the rise for the past few years, and businesses need to comply with the increase in regulations.
TPC Law believes that the PS Act is only the forerunner and the Singapore regulatory framework is set to increase in complexity, in line with the global trend. The challenge is to have robust regulatory oversight to secure the integrity of the payment infrastructure but at the same time not be rigid to the point of stifling technological advancements by payment service providers.