Reed Smith Client Alerts

On 2 November 2020, the Singapore government introduced a bill into Parliament to amend the Payment Services Act (PS Act). The bill sets out various changes to the PS Act to broaden its scope, as consulted on by the Monetary Authority of Singapore (MAS) in December 2019. We summarise below the key proposed changes and outline some of the potential implications for the digital assets sector, including key considerations for industry participants such as decentralised finance (DeFi) developers, digital-asset custodians and corporate finance advisers.

Authors: Hagen Rooke Anthony J. Diana Jeffrey D. Silberman Simon G. Grieser Tim Dolan Carolyn Chia (Resource Law LLC)

The policy drivers behind the changes to the PS Act are explained in an explanatory brief accompanying the bill, as well as in an MAS consultation response that was published shortly after the bill. The changes to the PS Act will, once effective, align the scope of Singapore payment services regulation with the guidance on anti-money laundering and countering the financing of terrorism (AML/CFT) for virtual asset service providers (VASPs) issued by the Financial Action Task Force (FATF) in June 2019. The bill will also widen the scope of regulated cross-border money transfer services under the PS Act, will give the MAS power to impose certain measures (e.g. for user protection purposes) on digital payment token (DPT) service providers, and will introduce a range of other miscellaneous changes.

We summarise below the key proposed changes and their practical implications.

Proposed changes

  • Broadening of licensable DPT services: At present, DPT service providers are regulated under the PS Act where they (i) deal in (i.e. buy or sell) DPTs or (ii) operate an exchange for the buying or selling of DPTs, where the operator of the exchange takes possession of money or DPTs. To achieve alignment with the scope of regulation for VASPs envisaged by the FATF, licensable DPT services under the PS Act will be broadened to include:
    • The transfer of DPTs. This will capture any service of transferring, or arranging for the transmission of, DPTs from one token address or account to another, whether within Singapore or on a cross-border basis.
    • Providing custodial wallet services for DPTs. This will be relevant to entities that conduct safeguarding or administration of (i) a DPT where the entity has control over that DPT, or (ii) a DPT instrument (e.g. private key) where the entity has control over the DPT associated with the DPT instrument.
    • Facilitating the exchange of DPTs without possession of money or DPTs by the DPT service provider. Service providers falling within this category will be those which induce or attempt to induce any person to buy or sell any DPT in exchange for any money or any other DPT.
  • Regulating additional cross-border money transfer services: Currently, the PS Act regulates cross-border money transfer service providers only where they accept or receive monies in Singapore. To more fully address money-laundering and terrorism-financing risks, the PS Act will be amended to also capture entities that broker cross-border money transfers between entities in two different countries in cases where monies are not necessarily accepted or received in Singapore.
  • New MAS powers to regulate DPT service providers: The PS Act currently regulates DPT service providers principally for AML/CFT purposes. However, to address risks arising from rapid user adoption of new DPTs, including stablecoins, the MAS will be provided with powers to require DPT service providers to ensure the safekeeping of customer assets they hold, and to impose other measures on DPT service providers, e.g. where in the MAS’ view this is necessary or expedient in the interest of the public.
  • Miscellaneous amendments: Various further amendments are being introduced, including (i) to allow the MAS to prescribe additional payment service providers that must safeguard customer money, (ii) to provide that a domestic money transfer service includes arrangements where either the payer or the payee is a financial institution, and (iii) to provide that the general duty to use reasonable care not to provide false information to the MAS is not limited to individuals.