PS Regs amended to exempt MPIs from safeguarding requirements when providing cross-border money transfer services that have no Singapore nexus

Cross-border money transfer services are currently limited to facilitating money transfers that have a Singapore nexus (e.g., where money is accepted in Singapore for overseas transmission, or received for a person in Singapore). Generally, MPIs that provide cross-border money transfer services must safeguard any money they receive from, or on account of, their customers (the Safeguarding Obligation).

The PS (Amendment) Act expands the scope of cross-border money transfer services to include any service of arranging for the transmission of money from any country/territory to another, thereby capturing money transfers that have no strong nexus to Singapore. In light of this expansion, the MAS has now proposed to amend the PS Regs to exempt MPIs from the Safeguarding Obligation where they arrange money transfers that have no strong nexus to Singapore, i.e., where all of the following conditions are met:

(a) the payer and payee are foreign persons;

(b) the money to be transferred is not accepted or received by the MPI in Singapore; and

(c) the MPI has informed its customer(s) in writing that their money is not safeguarded under the PS Act.

Should this proposal come into force, MPIs that arrange for the transmission of money from one overseas jurisdiction to another need not comply with the Safeguarding Obligation in relation to money they receive for that transmission provided the above conditions are met.

Amendments to Notices PSN01 and PSN02

Notices PSN01 and PSN02 to apply in their entirety to Newly Scoped-in Payment Services

The MAS has proposed to apply all the AML/CFT requirements set out in Notices PSN01 and PSN02 to the Newly Scoped-in Payment Services. In particular, Notices PSN01 and PSN02 will be amended to apply the travel rule to the newly scoped-in cross-border money transfer service of arranging for the transmission of money from any country/territory to another, and to the newly scoped-in DPT service of arranging for the value transfer of one or more DPTs, respectively.

Group-wide AML/CFT policy requirement to be imposed on licensed and exempt PSPs

The MAS has proposed to amend Notices PSN01 and PSN02 to impose an obligation on licensed PSPs and exempt PSPs that are incorporated in Singapore to develop and implement group-wide AML/CFT policies. The group-wide AML/CFT policy should contain, among others, procedures for sharing information required for customer due diligence, and policies on money-laundering and terrorism financing risk management within the group.

PSPs will also be required to ensure that branches or subsidiaries, particularly those in countries or jurisdictions flagged by the Financial Action Task Force or known to have inadequate AML/CFT measures, strictly adhere to the group-wide AML/CFT policy. Should this proposal come into force, Singapore’s AML/CFT standards will form the baseline for PSPs that operate in Singapore and other, overseas jurisdictions. Ultimately, such PSPs will have to ensure that their overseas branches apply either the host jurisdiction’s AML/CFT standards or Singapore’s AML/CFT standards, whichever are the higher, and to the extent permitted by the law of the host jurisdiction.

Notice PSN01 amended to relax travel rule for specific wire transfers

PSPs that are subject to Notice PSN01, and who act as the ordering, beneficiary, or intermediary institution in relation to a wire transfer must comply with the travel rule, which, broadly, requires wire transfers to be accompanied by certain information. The MAS has now proposed to exclude wire transfers from the travel rule where:

(a) the wire transfer flows from a transaction carried out using a charge card, credit card, debit card, prepaid card, or electronic wallet;

(b) the transaction is for the purchase of goods or services; and

(c) the charge card, credit card, debit card, prepaid card, or electronic wallet number, as well as the name of the issuer, accompanies the wire transfer.

Should this proposal come into force, PSPs that are subject to Notice PSN01 will, essentially, only need to comply with a limited travel rule in respect of wire transfers flowing from transactions to purchase goods or services carried out via a charge card, credit card, debit card, prepaid card, or electronic wallet. PSPs should note that the above exclusion does not apply to person-to-person wire transfers.

Notice PSN02 amended to extend agency arrangement requirements to DPT service providers

The MAS has proposed to introduce requirements in respect of agents that are appointed by DPT service providers (i.e., PSPs that provide DPT services). Should this proposal come into force, DPT service providers would have to comply with various documentation and AML/CFT requirements when appointing an agent to assist them in the provision of DPT services. This proposal aligns Notice PSN02 with Notice PSN01, which already imposes agency arrangement requirements on PSPs that provide account issuance services, domestic money transfer services, cross-border money transfer services, and money-changing services.

MAS Notice PSN04 amended to expand the scope of data to be submitted as part of periodic regulatory reports

The MAS has proposed to expand the scope of data to be submitted by PSPs as part of their periodic regulatory reports to take into account the Newly Scoped-in Payment Services. Notably, the MAS will:

(a) collect additional data relating to Newly Scoped-in Payment Services;

(b) collect additional data relating to breakdowns on the number of higher risk customers;

(c) collect data relating to transaction value and volume; and

(d) collect statistics on financial institutions’ exposure to anonymity-enhancing technologies.

If implemented, these proposals will only take effect six months from when the PS (Amendment) Act comes into force, to allow existing and newly regulated PSPs enough time to make the necessary enhancements to their data collection systems.

Amendments to MAS Notices PSN07 and PSN08

Notice PSN07 amended to update general conduct requirements

Notice PSN07 sets out the conduct requirements that apply to PSPs. The MAS has proposed to amend various conduct requirements in PSN07 to take into account the Newly Scoped-in Payment Services, including requirements relating to:

(a) recording of transactions;

(b) issuance of receipts;

(c) transmission of money; and

(d) displaying of exchange rates and fees.

Notably, the MAS has proposed to amend the requirements on timeframes for transmission of money where the customer is a corporation, to take into account the fact that some PSPs serve only corporate customers who operate on a delayed payment basis. On top of the prescribed timeframe within which money must be transferred to the payee, PSPs can agree in writing with their corporate customers to apply a longer money transmission timeframe. This option is only available where the customer is a corporation; otherwise, the prescribed timeframes will apply.

Notice PSN08 amended to accommodate expanded definition of DPT services

Notice PSN08 sets out the disclosure and risk warning statements that PSPs must provide to their customers. The MAS has proposed to update the risk warning statements that DPT service providers must provide to their customers in light of the expanded definition of DPT services. The amended risk warning statements can be found at Annexes A1 to A4 of Notice PSN08. Among others, DPT service providers will be required to clarify the extent to which they are regulated under the PS Act, and to make clear that they are not regulated in relation to any unregulated cryptocurrency-related products (such as DPT derivatives) that they provide.

Grandfathering provisions to be introduced via forthcoming Payment Services (Exemption for Specified Period) Regulations 2023

In a Consultation Response issued in November 2020, the MAS indicated its intention to exempt specific entities from the amendments to the PS Act for six months. The MAS has proposed that these exemptions be introduced via a new set of regulations, namely, the Payment Services (Exemption for Specified Period) Regulations 2023, and clarified that these exemptions will not differ from the arrangements proposed in its November 2020 Response.

Who is eligible for the exemptions?

The MAS has further clarified that the exemptions will only apply to entities (Affected Entities):

(a) that are newly regulated under the PS Act due to the amendments, or are currently licensed under the PS Act, but need to vary their licence to include domestic money transfer services, cross-border money transfer services, or DPT services;

(b) that have commenced business on, or before, the commencement date of the PS (Amendment) Act; and

(c) that have notified the MAS of the date on which they commenced business within 30 days after the commencement date of the amendments to the PS Act.

The exemptions will not be available to entities that are already licensed to carry out domestic money transfer services, cross-border money transfer services, or DPT services (as the case may be), and that also provide (or intend to provide) the Newly Scoped-in Payment Services. Instead, such entities will be allowed to provide (or continue providing) the Newly Scoped-in Payment Services from the onset insofar as their existing licence allows them to.

In other words, if a PSP is already providing (or intends to provide) a Newly Scoped-in Payment Service, and already has a licence to provide payment services of that type, it need not submit a separate application to vary its licence. For example, if a PSP is already licensed to provide cross-border money transfer services, it need not vary its licence if it intends to provide, or is already providing, the newly scoped-in cross-border money transfer service of arranging for the transmission of money from one country/territory to another.

Additional requirements imposed on Affected Entities

The MAS is also considering imposing additional requirements on Affected Entities when they submit their licence application or variation, in order to obtain assurances that they will be able to satisfy obligations as licensees under the PS Act. Some measures which the MAS is considering include:

(a) Requiring an Affected Entity to obtain the services of an experienced external auditor to conduct an audit and report to the MAS on the Affected Entity’s risk controls.

(b) Requiring an Affected Entity to engage an experienced independent third party to assess and confirm the adequacy of the Affected Entity’s compliance policies in relation to the PS Act.

The MAS has further indicated that these third party assessments will form a crucial component of an Affected Entity’s licence application or variation. As such, the MAS will not accept any application missing the relevant third party assessments.

Extension of exemption period upon application for licence or application to vary existing licence

Where an Affected Entity applies for a licence or applies to vary its existing licence within the six-month exemption period, the exemption period will be extended to the date on which the licence application or variation is approved, refused, or withdrawn. Should an Affected Entity fail to submit the relevant licence application or variation, it will be required to cease operating the regulated payment services six months from when the PS (Amendment) Act commences.

Comments

The consultation closes on 8 June 2023, and the PS (Amendment) Act could subsequently come into force as early as Q3 or Q4 2023. While most industry participants would, by now, be familiar with the PS (Amendment) Act, industry participants should assess the impact that the proposals set out in the Paper may have on their business operations. In particular, entities that are already regulated under the PS Act should prepare to comply with the updated conduct requirements set out in this consultation, whereas entities that will become newly regulated under the PS (Amendment) Act should note the requirements of the forthcoming grandfathering framework and the requirements they will need to meet to be eligible for licensing thereafter.

Reed Smith LLP is licensed to operate as a foreign law practice in Singapore, under the name and style Reed Smith Pte Ltd (collectively, “Reed Smith”). Where advice on Singapore law is required, we will refer the matter to and work with Reed Smith’s Formal Law Alliance partner in Singapore, Resource Law LLC, where necessary.

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