(Delivered in Parliament on 14 January 2019)
Mr Speaker sir, the MAS currently regulates the various types of payment services under two acts – the Payment Systems (Oversight) Act, and the Money-Changing and Remittance Businesses Act. The Payments Service Bill that is now up for second reading is an attempt to consolidate the regulation of payment services, which had previously been under two separate Acts, while clarifying and increasing protections for consumers in order to encourage and sufficiently regulate electronic payments. The Bill covers a whole gamut of activity, including money changing and cross-border transfers.
The Bill proposes a dual-track regulatory framework, one intended for major payment institutions while the other is intended for smaller players.
As a PWC report put it, the approach is a “broadening of the licensing regime for payments activities to create certainty for a wider spectrum of payment services providers” and “a departure from a product-based licensing model towards a more flexible activities-based and risk- based licensing model”.
Mr Speaker sir, before I proceed, I declare my interest as the CEO of a research consultancy that undertakes studies in financial services, among other industries.
Sir, I think on the whole this Bill strikes the right balance between putting in place protections for the consumer and the country on the one hand and not over-regulating so as to stifle innovation and hence consumer choice on the other. I do not oppose this Bill. I do, however, have a number of clarifications to seek.
Firstly, under this Bill, payment service licensees will not be allowed to offer credit facilities. Does this mean that such payment service providers are only prohibited from earning interest or other income from providing credit services, or does this extend to such service providers being prohibited from, for example, allowing very short-term, small-scale overdraft on e-wallets at zero interest?
Secondly, there is a clear consensus that end-customers of payment services should understand the full extent of risks they will be exposing themselves to by using different payment systems. Will payment service providers, including standard payment licensees as well as exempt payment licensees, be required to provide such explanations to their customers and will the requirement be sufficiently prescriptive in terms of the language used? One reason I ask this is because Clause 13 states that persons may apply to be exempt from any of the provisions of the Bill. One issue facing users of electronic financial services is that explanation of risks is often couched in very wordy, arcane and legalistic language – risks such as, for example, that e-money floats are not safeguarded by MAS regulations for standard payment services licensees. Would payment service providers be encouraged and required to make available simple and clear risk statements – for example available with one click on a user interface? Having said that, I do acknowledge that the longer and legally comprehensive statements also have to be provided and acknowledged by customers alongside the simpler summaries.
I would also like to ask what measures are in place to promote greater financial literacy among customers of financial services in relation to the risks associated with e-money and virtual currencies.
Thirdly, in relation to the Bill’s provision that a licensee would need to move from a standard to a major license if the average monthly float over the previous calendar year exceeds $3 million and $6 million respectively for different sets of activity, what is the transitional time frame given to the company, since it will only realize that it has breached the threshold after the breach has occurred, as it were?
Section 4.8 of the MAS consultation paper read: “A standard Payment Institution that wishes to upgrade its licence to a Major Payment Institution Licence will need to apply for a variation of licence before the thresholds are breached.”
I understand that MAS did address this issue in point 4.8 of its consultation response paper. I would just seek to clarify if, as was suggested in that response, payment service providers that realise they have breached the thresholds would be required to apply for an upgrade of their license by a set date every year as part of an annual license review cycle; or, instead, would be given a fixed period of grace time to make that application from the time when there is evidence that the threshold was breached?
Fourthly sir, the Bill bans cash withdrawals from stored-value balances for reasons of anti-money laundering (AML) and combating the financing of terrorism (CFT). Section 3.15 in the consultation response paper states that cash withdrawal is not allowed because the aim of the Bill is not to promote cash and also because of restrictions imposed by Free Trade Agreements that require this to be the exclusive provenance of qualifying full banks (QFBs). However it would appear that withdrawals of non-Singapore dollars and by non-Singapore residents are exempt. It is not clear why the latter is permitted and the former is not, since withdrawals of non-Singapore dollars and by non-Singapore residents may also raise similar AML and CFT concerns. Would the MAS consider allowing limited withdrawals of cash from stored value balances up to a maximum cap to limit the AML and CFT downside risk and to the extent that it is FTA-compliant, so as to increase convenience for users of stored value balances who, for various reasons, may feel it necessary to use small amounts of cash for day-to-day expenses purposes?
Fifthly, this Bill regulates virtual currency intermediaries for AML and CFT purposes. The MAS consultation paper response opines that the public use of virtual currency is not yet significant enough to warrant a need for user protection, going on to state that amendments to payment services legislation may be needed in future to respond to changes in the fast-developing world-wide virtual currency and virtual currency regulation space. I would like to ask what would be the time frame within which the government envisages that virtual currency user protection legislation may need to be enhanced. I would also like to ask if MAS is monitoring the ownership and attitudes towards virtual currency domestically, to be a in a better position to judge when interventions are advisable.
Lastly, I would like to query the e-wallet size restriction of $5,000 and transaction flow cap of $30,000. It is noted that five respondents to the MAS consultation paper felt that these caps would slow the growth of the e-payments industry while three additional respondents felt that the caps were set too low and two respondents wanted better clarity on the rationale for imposing caps. The MAS response to this feedback was that the caps were set at those levels to limit the customers’ potential loss since e-money is not protected by deposit insurance. There could potentially be demand from some customer segments for larger e-money transaction sizes on e-wallets. These caps could limit the scope for new entrepreneurial business models emerging catering to these segments, which could, in theory, scale up their business overseas and create good jobs for Singaporeans to support such export sales. Would the government consider raising the caps on a case by case basis if sufficiently strong, concise and plainly worded risk warnings were given to customers, which customers were mandated to acknowledge? A minimum annual taxable income floor could also apply to those customers where caps are raised, to protect the most vulnerable customers.