The Monetary Authority of Singapore (‘MAS’) on November 2, 2020, introduced the Payment Service (Amendment) Bill (‘Bill’) to make amendments to the decentralised finance (‘DEFI’) and the virtual assets sphere in the Payment Services Act 2019 (‘PS Act'). The amendments come in lieu of the international standards, addressing money laundering and terrorism financing risks for virtual asset service providers, (‘VASPs’) which were adopted by the Financial Action Task Force (‘FATF’) in June 2019. Given the fact that many of the VASPs are yet to be regulated as financial institutions and have cross-border transaction schemes, an increased risk towards money laundering is perceived. MAS had also introduced a consultation document in December 2019 on the draft legislative amendments in the above regard. We summarise the key changes brought by the Bill in relation to digital assets and VASPs.
Expansion of Digital Payment Token Service Providers
The PS Act currently regulates digital payment token (‘DPT’) service providers on the following aspects: (a) dealing in DPTs; and (b) operation of an exchange, wherein the operator is in possession of the DPTs. The aim of the MAS is now to widen the scope of DPT service providers, in order to bring them in line with the AML/CFT recommendations which have been prescribed by the FATF in June 2019. As per the Bill, the licensing of the DPT service providers and its definition shall now be widened to include the following services:
transfer of DPTs;
custodial wallet services for DPTs; and
expansion of the exchange of DPTs without any possession of moneys or DPTs by the DPT service provider.
The DPT service provider, who is providing the above services, will have to be licensed under the PS Act and subjected to AML/CFT regulations.
Cross Border Transfers
The Bill also scopes to broaden the definition of cross-border money transfers to now include service providers that actively facilitate cross-border money transfer even when moneys are not being accepted or received in Singapore. This is different from the current regime, wherein the PS Act only regulates cross-border money transfer service providers where the money is being accepted or receive in Singapore.
Additional Powers of the MAS
Currently, the MAS’s power is limited by virtue of the PS Act to regulate DPT services providers for the purposes of money laundering and terrorism financing. However, with the induction of new tokens such as stablecoins, DPT service providers are susceptible to increased risks. In this regard, the MAS will now be provided with additional powers to impose measures in the wider ambit of public interest. Some of the measures that MAS will now be able to impose are:
protection of the user for DPT service providers to ensure the safekeeping of the customer assets held with such service providers; and
measures when the conduct of the DPT service providers affect the interest of the public or the financial stability of the Singapore economic system.
Other Amendments
The Bill also provides for certain ‘miscellaneous’ amendments to be introduced. Some of them are highlighted as under:
MAS may prescribe an additional subset of payment services or class of licensees;
MAS may broaden the scope of the current definition of domestic money transfer services and may also include situations where the payer or the payee is registered as financial institutions. This is a change from the current regime where the MAS only regulates payee or payer when they are not financial institutions; and
the reasonable care to not provide false information to the MAS will be expected from all persons, notwithstanding them being individuals, institutions, or firms.
BlockSuits Comments
The amendments prescribed by the Bill are in line with the recommendations which were released by the FATF in June 2019. The amendments shall bring a more comprehensive regulatory regime for DEFI and the crypto-assets ecosystem in Singapore. Moreover, given MAS’s extensive focus on DPT service providers, firms operating as the same will have to revamp their existing AML/CFT terms in order to be fully compliant with the amendments. The expansion in MAS’ powers and activities of DPT service providers will bring in more financial institutions providing crypto services, even custodial services, within the ambit of the MAS. Moreover, firms that are providing pure technical services should make sure that they are not transmitting or conducting any ‘payments’ activity under the scope of the PS Act.
Authored by Shivani Agarwal, and Samaksh Khanna
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