Payment Services Bill

Order for Second Reading read.

2.48 pm

The Minister for Education (Mr Ong Ye Kung): Mr Speaker, I beg to move, “That the Bill be now read a Second time.”

Technology is transforming the world of payments. In particular, FinTech, or Financial Technology, has opened up opportunities for more convenient, faster and cheaper payments.

At the same time, new payment methods give rise to new risks. This has necessitated a review of our regulatory framework. Further, services that were previously provided separately and regulated separately are now merging.

MAS currently regulates various types of payment services under two Acts, first, the 2006 Payment Systems (Oversight) Act - or PS(O)A - and the 1979 Money-Changing and Remittance Businesses Act - or MCRBA. The Bill combines the PS(O)A and MCRBA into a single Payment Services Act.

The Payment Services Bill provides a forward looking and flexible framework for the regulation of payment systems and payment service providers in Singapore. It provides for regulatory certainty and consumer safeguards, while encouraging innovation and growth of payment services and FinTech. In drafting the Bill, MAS has taken reference from regulatory frameworks in various other financial centres – Australia, Hong Kong, Japan and the United Kingdom.

Let me outline the broad approach underpinning the Bill.

First, we are adopting a regulatory structure that recognises the growing convergence across payment activities which I just mentioned. For example, payment and remittance services are now often provided as one product to customers.

Second, we are expanding MAS’ regulatory scope to include more types of payment services, such as digital payment token services and merchant acquisition. The Bill includes provisions that level the playing field for banks and non-banks, and that enhances user protection.

Third, we have adopted a modular and risk-focused regulatory structure, so that our rules are tailored to the scope of services being offered by any provider. A modular approach gives MAS the flexibility to regulate payment service providers that offer one, two or more parts of the payment value chain. It also enables MAS to respond quickly to fast changing payment solutions and business models. A risk-based approach enables MAS to impose proportionate regulatory measures on each type of payment service provider, depending on the scale of their activities.

MAS has conducted public consultations on the Bill, and has engaged extensively with the industry. It has been well received. MAS has considered all the feedback and, where appropriate, has taken them into account in preparing this Bill. Mr Speaker, let me now take the Members through the key areas of the Bill.

The Bill comprises two regulatory frameworks: a designation regime and a licensing regime.

The designation regime enables MAS to designate significant payment systems, to ensure the stability and market efficiency of the financial system.

Designating payment systems for financial stability reasons is a power that is already provided under in the PS(O)A, and that will be retained. However, the Bill provides for an additional basis for designation, which is to ensure efficiency and competition in the financial system. This is because a payment system that becomes widely used and dominant can be used to shut out competition and new, innovative players. Hence for competition reasons, MAS can designate a payment system if it is widely used in Singapore, or its operations have an impact on the operations of other payment systems in Singapore.

The second framework is quite a complex one – it is a licensing regime to allow MAS to regulate a wide range of payment services in a manner that matches the scope and scale of services provided by each provider, and that can respond flexibly to market developments, as I have explained.

The services can be grouped into seven types: account issuance, domestic money transfers, cross-border money transfers, merchant acquisition, e-money issuance, digital payment token dealing and exchanges, and money-changing.

Service providers may offer different combinations of these services, and the licensing regime will regulate them according to the risks they pose.

MAS will not impose requirements uniformly across all licensed payment service providers. We will have three classes of licences – a licensee may be (a) a money-changing licensee, (b) a standard payment institution, or (c) a major payment institution. These three classes will be broad enough to deal with the different combinations of payment services that a service provider may offer. Each service provider needs to hold only one of the three licences. And in line with our risk-based approach, the regulatory requirements for each class of licence differ according to the risks posed by the scope and scale of services provided by the licensee.

This is how it will work.

First, money-changing licensees can provide only money-changing services. They will continue to be regulated under the Bill in largely the same way as it is under the existing MCRBA, as the attendant risks have not changed. The regulation is quite narrow in scope, as these are over-the-counter services often offered by small businesses such as sole proprietors, with limited risks.

Second, standard payment institutions may provide any combination of the seven defined payment services, but below specified transaction flow or e-money float thresholds. They will be regulated more lightly, and the regime mimics a “permanent sandbox” environment to encourage innovation and enterprise. So this is where FinTech companies will play.

Third, major payment institutions can go above the specified thresholds. As the scale of their operations would pose more risk, they will be subject to more regulation.

This new licensing regime is a more comprehensive and robust framework than what current legislation provides. We will be regulating new services, as well as expanding the scope of activities under the services we currently regulate.

Services that MAS will now be regulating are domestic money transfers, merchant acquisition, and digital payment token (DPT) services. We will be among the first few financial services regulators in the world to introduce a regulatory framework for DPT services, and this is more commonly understood as cryptocurrency dealing or exchange services, but we call it DPT in this Bill. As we have stated in Parliament before, while there may be some potential in these DPT services, they also carry significant money laundering and terrorism financing risks (ML/TF risks) due to the anonymous and borderless nature of the transactions they enable. Under the Bill, all providers of DPT dealing or exchange services in Singapore will have to meet anti-money laundering and counter financing of terrorism requirements – this is abbreviated "AML/CFT". So AML/CFT is to counter ML/TF. I will be using more of that later; so just to be clear.

We are also recognising new activities under the services we currently regulate. The definition of e-money in the Bill will go beyond stored value or pre-paid services, such as public transport cards, to include, now, e-wallets – that is, any monetary value that is held for future payment transfers between individuals or with corporates. This means that e-money issuers have an obligation to protect the value held in major e-wallets for consumers and merchants.

Further, under the Bill, we will regulate inward remittance services in addition to outbound remittance services that are currently regulated.

The Bill will also clarify that a person will be presumed to carry on a business of providing a payment service even where the payment service is only incidental to the person’s primary business. The intent is to dis-apply the 2017 Singapore High Court decision in Chinpo Shipping Co (Pte) Ltd v. Public Prosecutor, which suggests that the undertaking of remittances that are purely incidental to a primary business of ship agency and ship chandelling would not have constituted the carrying on of a remittance business under the MCRBA.

Mr Speaker, I will now elaborate how the Bill will mitigate the four key risks that are common across many payment services: first, loss of customer monies; two, ML/TF risks; three, fragmentation and lack of interoperability across payment solutions; and four, technology risks including cyber risks. Proper oversight of these risks will both protect the public and facilitate a vibrant payment services sector.

The first key risk is that customer monies entrusted to payment service providers may be lost, such as when the service provider becomes insolvent. The Bill requires major payment institutions to safeguard customer monies from loss through the institutions’ insolvency using any of the following means: first, an undertaking or guarantee by any bank in Singapore or prescribed financial institution to be fully liable to the customer for such monies; two, a deposit in a trust account; or three, safeguarding in such other manner as may be prescribed by MAS.

However, we also want to ensure that measures are not too onerous or stifling. That is why we adopted three classes of licences. So, for example, standard payment institutions are not subject to the safeguarding requirements which are for major payment institutions, but the standard payment institutions must disclose this to their customers so that the customers can make informed decisions on which payment service or provider best suits their needs.

The second risk is that payment services may be used for ML/TF, such as through illicit cross border transfers, anonymous cash-based payment transactions, structuring of payments to avoid reporting thresholds or the raising or layering of assets or funds for ML/TF purposes. MAS studies the business model of each payment service to determine where regulatory measures should be imposed. The appropriate AML/CFT requirements will be imposed on relevant licensees through Notices issued under the MAS Act. MAS will also provide guidance to the industry.

A third risk is that payment solutions in Singapore become fragmented. We have deliberately allowed many e-payment solutions to come on stream in Singapore. This provides choice for consumers but the downside is that it can also be confusing. MAS has been persuading the industry to undertaken various measures to ensure that the solutions are interoperable, within an open architecture. For example, we worked with the banks to implement PayNow, to make instant payment transfers more convenient for consumers and businesses. So, today I can use the PayNow feature from the app of one bank to pay a friend who is banking with a different institution. And the money I transfer goes directly into his bank account and that is open architecture, interoperability at work. We also worked with the industry to introduce SGQR, which allows different e-payment schemes to be accepted via a single standardised and unified QR code.

This Bill will give MAS formal powers to ensure interoperability of payment solutions, in the interests of consumers and market development. The Bill will provide MAS with the powers to mandate the following outcomes:

One, a designated payment system operator or major payment institution must allow third parties to access any payment system it operates, and the access regime imposed must be fair and not discriminatory;

Two, a major payment institution must participate in a specified common platform or equivalent arrangement to achieve interoperability of payment accounts; and

Three, a major payment institution must adopt a common standard to make widely-used payment acceptance methods interoperable.

MAS will exercise these powers judiciously. We will continue to employ its powers of persuasion with the payment players, before using its interoperability powers as a last resort.

Finally, technology risk. The Bill will give MAS powers to impose technology risk management requirements, including cyber security risk management requirements, on all licensees. We will require payment service providers to ensure there is adequate risk governance and implementation of adequate controls, particularly in areas such as user authentication, data loss protection and cyber-attack prevention and detection.

Mr Deputy Speaker, this Bill right-sizes regulations depending on the risks posed by the payment service provider. This means tailoring our regulations to the activities of the licensees, such as opening accounts, issuing e-money, transferring money within Singapore and overseas and providing e-payment solutions to consumers and merchants.

It must therefore follow that if the licensees wish to do more, then they must be subject to more regulatory measures. Licensees therefore cannot engage in consumer lending or banking activities such as accepting deposits and granting loans, unless they hold the appropriate licence under the Banking Act or the Moneylenders Act.

Banks perform a vital economic function of intermediating savings. They take in deposits and on-lend these funds back into the economy to help it grow. To protect depositors' interests, banks are subject to much more stringent prudential regulation and supervision, such as on the amount of capital and liquid assets they must hold, how much concentration risk they can take, and how they manage repayment risks and make provisions against those risks.

Non-bank payment service licensees do not perform similar economic functions, and do not face similarly stringent regulations. Accordingly, e-money issuers will not be allowed to on-lend any customer money or use any customer money to materially finance their own business activities. Additionally, withdrawals of Singapore dollars will not be allowed from e-money accounts held by Singapore residents. This is consistent with the objective of the Bill, which is to promote greater adoption of electronic payments, in lieu of cash services. It will also preserve the privileges of our Free Trade Agreement partners, whose banks have been accorded access to ATMs and cashback services.

Finally, personal payment accounts will be subject to a stock cap, which is the maximum amount of funds that can be held in a personal payment account at any given time. They will also be subject to an annual flow cap. This is the maximum cumulative amount of yearly outflows from the personal payment account, other than to the user's designated bank accounts. The stock and flow caps were calibrated with due regard to consumer needs and existing industry practices, and will be set initially at $5,000 and $30,000 respectively. These caps will not apply to merchant payment accounts that cater to business uses.

These caps help to further protect customers by limiting a customer’s potential loss from his e-money account. This also enables the e-money safeguarding measures to be simple and low-cost, different from deposit insurance that banks have to undertake. More importantly, the caps will ensure continued stability of the financial system, by reducing the risk of significant outflows from banks deposits to non-bank e-money which can undermine the stability of our banks.

Mr Speaker, Sir, the Bill is a necessary piece in Singapore's Smart Nation journey. It will help us build a technologically robust smart financial centre, that preserves stability while facilitating innovation and growth in the payments landscape. Mr Speaker, I beg to move.

Question proposed.

3.06 pm

Mr Saktiandi Supaat (Bishan-Toa Payoh): Mr Speaker, Sir, the payment landscape has been evolving in recent years. With more services going cashless, we have seen an increase in the number of payment services and activities. To maintain our reputation as a global financial hub and to faciliate smooth transactions, we have to keep up with these changes. Meanwhile, these changes also bring along with them new risks, so we must stay vigilant and guard against these risks.

By expanding the scope of regulated activities beyond existing facilities and services under the new Payment Services Bill, merchants and consumers can be assured of better protection from MAS across a wider range of payment activities. This will in turn lead to greater confidence and more widespread use of e-payment services. Overall, I think not only will we expect a more secure environment for all to conduct transactions, we can also look forward to increased innovation in payment services.

This is a Bill which I foresee will be followed up by more amendments in the near future as the payment services landscape continues to evolve and grow. Although it is important to adopt international standards and guidelines, it would be unwise to adopt a reactive stand and wait for these guidelines to be finalised. One feedback is that the banks have shut their doors to the virtual currency industry. Many, including digital exchanges, have had their bank accounts closed. New applications were rejected according to the Digital Exchange Association protem committee members, whom I had the opportunity of having a focus group discussion with. I also note that late last year, MAS expressed readiness in helping cryptocurrency firms to set up local bank accounts. Mr Speaker, Sir, what is the progress? How many firms have asked for help and what is MAS doing to help them?

Next, on the digital banking licence, I understand that the Hong Kong Monetary Authority (HKMA) has a much more liberal approach and they were considering giving approval to allow some cryptocurrency firms to conduct banking activity including taking deposits and lending. Perhaps the Minister could clarify if Singapore is looking into issuance of digital banking licences to such firms? If we are to position ourselves as a Fintech hub, doing so would help to improve financial inclusion.

Another issue is whether there could be more transparency by requiring payment providers to disclose the fees charged, what benefit the payment providers benefit from on-selling of any third-party products, and whether these providers are related to parties in a transaction.

Next, is the regulation of Crypto Custodians whether MAS is considering this so that the man-in-the-street is protected. These are the businesses which hold the monies of their customers. Should there be guidelines like what percentage of customers assets should be kept in "hot" or "cold" wallets?

These days many of us use e-services that comes with its own e-wallet, where consumers can deposit money in advance so it is ready on the go. But while convenient, problems like system errors and hacking incidents mean that consumers should be wary of incurring possible losses as a result. If the e-payment company goes out of business, this money is also not protected. Mr Speaker, Sir, in recent times, we saw how Mobike pulled out abruptly from the local bike-sharing market, leaving users in the lurch.

The Minister mentioned in his speech that major payment institutions are required to safeguard their customers' monies through an undertaking or guarantee by any bank in Singapore or prescribed financial institution to be fully liable to the customer for such monies, or have a deposit in a trust account. However, to avoid stifling innovation and advent of new payment services, the smaller payment services providers are not subjected to the same requirements. Instead, they would be required to inform their customers that their monies are not subjected to safeguarding requirements.

I appreciate the Minister's intentions to encourage smaller, experimental companies to set and establish their businesses here. Certainly, being less rigid towards the newer players has its benefits and will help the e-payment industry grow. Nevertheless, it will be necessary to establish a set of mandatory policies on how such advisories should be administered. Certainly, it would be inappropriate to put the advisory in small print in the terms and conditions, which many people already do not read or find difficult to comprehend. The advisory must be published somewhere easily visible and it should be accompanied by further explanations on the risks involved.

Furthermore, I think that these smaller payment service providers should still be required to set aside a deposit, in lesser amount than that of the major payment service providers. Sometimes, when a company has to undergo insolvency, it leaves behind some issues that takes up additional resources to resolve. For example, LTA had to impound bikes and follow up with Mobike to ensure their bikes are removed. The monies from the fund can be used to fund such operations. Moreover, I believe it will help to hold these companies to greater accountability. Experiential and risk-taking behaviour should be encouraged, but when large sums of money from the public are involved, one cannot afford to be too free with it.

Despite the proliferation of online services, it would still be wise to limit the use of e-money to the smaller day-to-day transactions. I note that the prescribed cap on personal stored-value balances are kept at $5,000 and $30,000 respectively for stock and flow caps respectively. Several big players have earlier expressed disagreement with the cap amounts. Alipay, Wirecard and Paypal have said that the caps will slow down the growth of e-payments. And this is understandable as these are reputable companies often dealing with high value goods and services as well as the remittance of large amounts of money and purchase of investment products. Transferwise and Revolut outright raised objections, saying that their business models would be affected.

The Minister has said in his speech that these caps will not be applicable to merchant payment accounts that cater to business uses. While I think that this should put to rest some of the concerns expressed by the payment service providers, there are personal accounts that frequently deal with larger figures. Moreover, some companies already have safeguards in place for dealing with higher amounts. Transferwise for example, requires the provision of further document for sending amounts of more than US$10,000 and above, in-line with international wire regulations.

I would like to ask the Minister how the caps were arrived at? I think, while we want to manage the pace of deposit outflows and safeguard financial stability, and limit potential losses we also do not want to stifle businesses. In the near future, I believe we can only expect more businesses to introduce their own apps and payment services. This means transactions will go up in value, and these caps, while adequate now, may become too prohibitive in the future. Are there plans to make exceptions for certain e-payment platforms, or revise the caps on a regular frequency to reflect the growing extent of e-money usage for major transactions in the near future?

Having a number of different payment platforms can lead to increased inconvenience and frustration. No one wants their smartphones to be filled with e-wallets and payment apps, which no doubt takes up precious storage space, as we all probably know. A multitude of apps to choose from also means more confusion over payment, especially for the older users. The decision to mandate participation of a common payment platform and common standard is an important move. It allows for payment systems to be interoperable, as what Minister has mentioned just now, and makes e-payments more user-friendly. I have a question: what is the Ministry's forecast on our progress with regards to this aspect? How soon can we expect to move to this common platform? Can the affected merchants expect any assistance from the Ministry or MAS for that matter?

Mr Speaker, I am pleased to also note that certain cryptocurrency activities will now be regulated. The regulatory focus will be on money-laundering/terrorist financing (ML/TF), as Minister has mentioned. But such regulations will give cryptocurrency players more clarity and confidence. The feedback from the ground is that regulations are welcomed by local players and gives more confidence to the market. Will these regulations also serve as a positive signal to the overseas fintech industry in terms of our openness to see more of such activities on our shores?

As the current regulations do not cover user protection for public use of virtual currency, what are the plans, Minister, for a public consultation to formulate relevant policies? In the recent G20 meeting last year, country leaders have called for international cryptocurrency taxation. This is a testament to how fast the industry is moving globally, and a sign that we need to step up on further regulations in terms of personal transactions. I note that Singapore MAS has been fully supportive of the G20 and the Financial Action Task Force (FATF) but I hope as we make new rules and impositions on our financial institutions and others, we do not impose too much a burden on them.

Jobs are among the main benefits that would come from the diversification of the financial sector, and the development of the fintech sector. In enhancing our licensing framework, we must ensure that it does not inhibit overseas businesses. To stay accessible to overseas markets, it would also be prudent to keep up with the international standards so we maintain our reputation as a safe yet convenient place to do business. Minister, how unique is the licensing framework to Singapore in this regard, and how different are the regulatory structures from that of other countries?

My last point is with regard to exclusions and royalty points. I note with concern, some exclusions from licensing under the PSB, namely limited purpose e-money, incidental payment services by licensed entities, and loyalty programmes and limited purpose virtual currency. May I ask why these are excluded? And some of these things are practically being traded like cash, on online forums and selling platforms, for a profit. So, unlike regular goods and services, these items are partial or full substitutes for currency payments on specific platforms. One potential abuse problem I see with regards to virtual currency is that underaged users would purchase in-game assets through other platforms because they do not have credit cards. Are there plans to license these virtual currencies under the PSB in future as well?

In conclusion, I hope as we become more tech-savvy, we would not overlook the less digitalised people in our community and also senior citizens and those less tech-savvy people who would otherwise be alienated in the process. Sir, I support the Bill.

3.17 pm

Mr Leon Perera (Non-Constituency Member): 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 Payment Services 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”.

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 to be run 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, so to speak, 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 many 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 typical 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 such 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 licence 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 realise 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 licence by a set date every year as part of an annual licence 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) risk. Section 3.15 in the consultation response paper states that cash withdrawal is not allowed because the aim of this 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, so as to be in a better position to judge when interventions are advisable.

Lastly, Sir, 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 using 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 required to acknowledge? A minimum annual taxable income floor could also apply to those customers where caps are raised, to protect the most vulnerable group of customers.

3.25 pm

Prof Lim Sun Sun (Nominated Member): Speaker, thank you for this opportunity to speak on the Payment Services Bill. I wish to focus on the consumer protections that will be strengthened with this Bill. Specifically, the Bill will regulate the issuance of e-money, so that the funds we have in our e-wallets, including those for peer to peer transfers, will be protected by legislation. Personal e-wallets will also receive additional safeguards in the form of e-wallet and transfer limits, thereby according greater protection to vulnerable users such as the elderly. These measures will help to boost consumer confidence in e-payments and give our fintech sector a further shot in the arm.

Indeed, electronic payments have deep roots in Singapore. Over three decades ago, in March 1985, the Government launched the National Campaign to Minimise Cash Transactions to urge Singaporeans to undertake more financial transactions electronically, so as to increase productivity, reduce costs and make cashless transactions a way of life. This three-month campaign successfully convinced more Singaporeans to switch to receiving their salaries through direct credit to the bank, pay bills electronically via GIRO, and make purchases through the Electronic Funds Transfer at Point of Sale service.

With that historical context in mind, we need to ask why Singapore is not even further ahead in realising our vision of a cashless society. While Singapore is widely regarded as a fintech hub, it is also common to hear observations that we lag behind our regional neighbours in areas such as mobile payment. Our relatively slower adoption of mobile payment is somewhat anomalous considering Singapore's early embrace of cashless payments.

Being a first mover can indeed be a mixed blessing. Precisely because of our more mature financial ecosystem, consumers are well-accustomed to, and very well-served by NETS and credit cards. The relative advantage of newer e-payment systems is thus not as significantly felt. Cash also remains king. An MAS-commissioned KPMG study in 2016 found that cash is used in 60% of all non-stored value facility transactions. Cash is also the favoured payment option for small-value transactions such as in hawker centres, convenience stores and taxis. The introduction of automated cash collection machines in hawker centres and supermarkets may also further entrench our reliance on cash. Yet, the benefits of going cashless are considerable. The same KPMG study estimated that processing cash and cheques in terms of their storage, transportation, security and incineration costs S$2 billion per year or around 0.5% of our GDP.

In many respects, therefore, e-payments are eminently superior and we must zero in on the probable causes of consumer resistance to the newer e-payment services out there.

I have heard concerns, even from acquaintances in their 20s and 30s, that they do not use e-wallets or mobile payment because they are not confident of their security or reliability. Indeed, the results of PayPal's "Digital Payments: Thinking Beyond Transactions" survey released in August 2017 found that 51% of Singapore consumers surveyed expressed privacy concerns. Sixty-three percent said that more payment methods meant more confusion for consumers, and 53% found it challenging to keep up with fast-moving digital trends.

Separately, there is also feedback that e-payment interfaces should be much more intuitive so that they can help speed up transactions. Currently, some e-payment methods involve several steps that may yet require more time per transaction than by just paying with good old cash. Overall, there is also the problem of too many e-payment platforms and choices, and we need to accelerate systems integration to overcome the current fragmentation. So, I welcome the Minister's assurance in that regard. The launch of the SGQR code is one positive step in that direction.

Another often heard reservation about the shift towards cashless payments is that people will become desensitised to the value of money, and will therefore develop reckless spending habits. Such an aversion to e-payments rests on the belief that physically parting with your money gives one the sense of pain and loss, and can help instil frugality. Such concerns, well-founded or otherwise, can be easily addressed with some critical design interventions. Stored value e-wallets already highlight the amount remaining in the account, and provide a helpful log of all recent transactions. Additional features such as those allowing users to set a savings target for each month can also help to nurture good financial habits including fund management, budgeting and credit management.

Taken together, therefore, all these concerns highlight three salient points of action for addressing consumer resistance to e-payments in general. These are trust, design, and communication. I therefore welcome the additional consumer protections introduced by this Bill that will help to shore up consumer confidence and trust in e-payments. I also look forward to MAS’ implementation of the E-Payments User Protection Guidelines at the end of this month.

At the same time, however, I would like to ask the Minister whether there will be greater attention paid to (i) enhancing the design of e-payment services so that transactions can be speedier and more intuitive, and (ii) addressing concerns about the negative impact of e-payments on personal financial habits.

Also, with the burgeoning market in e-payment providers out there, some consumers are clearly experiencing cognitive overload and perhaps even choice paralysis. Hence, I would like to propose to the Minister that public education efforts be stepped up to better communicate to consumers the various options, protections and incentives that they enjoy with the different emerging e-payment methods out there. In particular, I would especially welcome targeted education for the elderly who are less well-acquainted with digital devices and platforms and may therefore be especially anxious about our shift towards a cashless society.

Mr Speaker, in Chinese, please.

(In Mandarin): [Please refer to Vernacular Speech.] To build a Smart Nation, we must rely on technologies to achieve the vision of a cashless society. We need to strengthen consumers’ trust and confidence in e-payment. The consumer protection provisions in the Payment Services Bill will help boost consumer confidence. At the same time, we also need to improve the design of e-payment interfaces so that it is easier to use. We need to guide the public, especially the elderly on how to use these apps.

(In English): In conclusion, Mr Speaker, notwithstanding the issues I have raised, I support this Bill.

3.33 pm

Assoc Prof Walter Theseira (Nominated Member): Mr Speaker, the growth of the payment services sector has been marked by tremendous innovation in technology and business models, often called Fintech. Payment services can generate economic value beyond just transferring money. Today, payment services firms use financial data and their customer relationships to provide analytics, business process outsourcing, marketing, and credit services. Stripe and Square, two leading US payment services firms, provide an increasing array of business services to merchants. The Payment Services Bill should allow for a competitive market that promotes all types of innovation in payment services, between Fintech firms and traditional financial institutions. After all, Singapore is a small market, but innovations developed here may allow our payment services firms to reach millions of consumers abroad.

There are several aspects of the Bill that may affect innovation and competition.

Section 20 prohibits payment services licensees from offering credit services. A firm with only a payment services licence will have to tie-up with a financial institution, or apply for the appropriate licence, to offer credit services. This is an important safeguard because of the risks posed by unregulated consumer lending. However, we should also ensure this does not unduly restrict the potential economic value created by payment services firms. Consumers and merchants alike may benefit from innovative short-term credit facilities that could be less costly than traditional credit cards and consumer loans. High frequency consumer payments data may well allow for low-risk small-scale consumer lending. This may be a key area of growth, as Singapore Fintech firms expand regionally to reach millions of consumers who now have little access to credit. Being able to trial such services in Singapore could be useful. I wish to ask if we have sufficient regulatory flexibility, perhaps through the MAS Sandbox, to allow payment services firms to trial innovations that may include credit facilities, with appropriate safeguards.

In addition, section 20 also prohibits payment services licensees from using customer funds from e-money to materially finance their operations. While this is an important safeguard, it may also increase the cost of capital for providing e-money services. We should be careful to avoid making e-money services less competitive than alternatives such as direct transfers from deposit accounts or credit facilities. I wish to ask if in practice, payment services licensees will be allowed to reduce or manage the cost of capital by investing customer funds in liquid, low-risk instruments such as Government securities.

This issue of the cost of capital is also relevant for section 23, which requires major payment institutions to safeguard customer monies with third-party financial institutions. While safeguards are vital for public confidence, this may make Fintech firms dependent on traditional financial institutions, who are their direct competitors. Some respondents to MAS' public consultation on the Payment Services Bill expressed the concern that traditional financial institutions can be hostile to Fintech firms, especially where emerging technologies such as cryptocurrencies are involved. I wish to ask what measures will be taken by MAS to ensure that a competitive market exists for safeguarding services, including directly providing such services as a last resort.

Now, sections 25 to 26 and 51 to 54 on inter-operability and the access regime address this problem of barriers to entry created by network effects. Payment services firms operate large consumer and merchant networks. This can be socially beneficial when there are economies of scale, or economies of scope in providing services such as analytics, marketing, or business process outsourcing. But networks obviously also can create barriers to entry. The Payment Services Bill will allow for mandated inter-operability and an access regime, which can ensure that networks are not abused to stifle competition and innovation. I wish to ask if the Minister could discuss what types of market tests, thresholds, or other behaviours, could be construed by MAS as requiring enforcement of these provisions. Public discussion of such tests may, in fact, prevent anti-competitive behaviour by payment network operators.

Finally, our regulation must remain flexible to promote innovation and growth. Defining the threshold in the Bill to define a licensee as a Major Payment Institution seems somewhat inflexible. I wish to ask if such limits could be defined instead in subsidiary legislation by MAS. In fact, the Bill already allows for such flexibility by specifying the section 24 e-wallet transaction limit as a "prescribed amount" to be determined by MAS. I wish to commend MAS for responding to feedback from the public consultation which asked for more flexibility on the e-wallet transaction limits. It will be useful if the Minister could share thinking on what the initial prescribed amounts for transaction limits are likely to be and the principles behind how regulators will review these limits periodically to support innovation while safeguarding the public.

A second issue for regulatory flexibility is that as Fintech firms become systemically important, their key appointments will be subject to more oversight by MAS regulation on Fit and Proper persons. Now, some Fintech firms have expressed concern whether regulators appreciate the different human capital requirements for key appointment holders between Fintech firms and traditional financial institutions. Many Fintech firms are headed by entrepreneurs with technology backgrounds rather than financial backgrounds. It will be useful if the Minister could assure the Fintech industry that MAS will take these concerns into account when applying the Fit and Proper criteria.

Mr Speaker, the Payment Services Bill will regulate an important and rapidly growing part of our financial services industry. It is important to ensure that both Fintech firms, and traditional financial institutions, can compete fairly to deliver innovation and growth for all Singaporeans. I support the Bill.

3.40 pm

Mr Mohamed Irshad (Nominated Member): Mr Speaker and hon Members of Parliament, I support this Payment Services Bill as it will streamline payment services under a single legislation by combining the Payment Systems (Oversight) Act and the Money-Changing and Remittance Businesses Act taking into account new developments in payment services and various risks they pose with expanded scope of regulated payment services.

It is a very comprehensive, well considered, globally researched, and above all, publicly consulted and reviewed. The Bill commendably sets out to protect Singaporeans in a digitised world. At the same time, the Government has been mindful not to immediately over react and therefore over-regulate. They have seemingly found a way to effectively achieve both outcomes.

With regards to the Bill, firstly, I would like to seek clarification on section 10 on annual fees of licensees. Are there any guidelines as yet for the prescribed annual fees for the three classes of licences?

Secondly, in the Consultation Paper by MAS, e-money is clearly defined as follows: “An e-wallet is funded with e-money. This e-money is denominated in fiat currency. This is an important distinction from virtual currency which is defined as any digital representation of value that is not denominated in any fiat currency.

In section 3.15 of the MAS Consultation Paper, it is mentioned that “the full definition of virtual currency and e-money are set out in the proposed Bill in Annex B”. It refers to an Annexure B in the Bill for definitions of Virtual Currencies, however the Annexure is not to be found in the proposed Bill document. Can the hon Minister clarify this point?

Thirdly, I refer to section 19 of the Bill on prohibition against exchanging e-money withdrawn from payment account for Singapore currency. It seems to be wanting to prohibit exchanging e-money for Singapore currency.

It states under section 19(1)(a), that a licensee that provides an e-money account is to prohibit a customer from (i) withdrawing e-money and (ii) exchanging that e-money "withdrawn" for Singapore currency at any of the licensee’s places of business.

On this point, can I check why there is a need to exclude an issuer from also doing transactions? For example, if the licensee is a bank, when I open an e-wallet with a bank and then one year later I want to cash that e-money back out, the provision in this part of the Bill seems to be trying to prohibit me from doing just that. Again, I would like to seek further clarification on the intended outcome that this section is trying to achieve.

In some jurisdictions Payment System providers are also able to provide loans and credit facilities to customers. This Bill explicitly forbids such provision of services. Is there another proposed Bill to cover such businesses in the digital age that would encompass e-money, e-wallets and virtual currencies and so on?

It is very hard for a specific country to frame regulations in the digital age of global cross-border businesses. I feel some of the legislation falls short of this global consideration. Having said that, once again, it is a commendable start for Singapore, who leads the world in framing such forward thinking rules of conduct. However, when it comes to innovation, perhaps we can take a leaf from China, specifically WeChat and AliPay.

Singapore was at the forefront of digital innovation, especially for financial innovation. So, where are we now compared to before? As a financial hub, we need to keep innovating to stay ahead and to compete globally. What is the Government’s plan to ensure our financial institution stay creative and innovative?

Quoting Mr Lim Siong Guan, former Head of Civil Service and former President of GIC, he said, “To ensure the country’s continuing success and survival, Singaporeans need to be a people who embrace innovation and excellence and be prepared to go out of their comfort zones, to create a new economic ascent.”

We need a culture of innovation. The spirit of innovation must be made an integral part of our character and personality as a nation and a society. There should be a deliberate, conscious, national effort to get such cultural transformation across all sectors of society. Start-ups and innovation have become an integral part of culture in countries such as Finland, Estonia and Israel. Singapore has to get there and be exceptional in our own ways. This I believe should be a cultural change and a mindset change and not simply a case of encouraging innovation.

In Singapore, we are inclined to pile accolades on people who have achieved top grades and got gold medals, and leave others unnoticed and unmentioned. This is a severe cultural challenge for changing values in society, to value best efforts, as opposed to disproportionately rewarding the super As and gold medals. There needs to be far more awareness in society on how to notice and nurture the best efforts of others around us.

Culture takes time to shape or reshape. It is an intergenerational challenge which needs committed leadership and consistency of effort, behaviour and action.

Prof Rosabeth Moss Kanter of Harvard Business School has pointed out that financial results are a “lagging indicator” of a company’s health. “They tell you what you have just done. They don’t predict the future. Culture is a leading indicator. Culture predicts the future.”

She adds that culture is “more important in some ways than strategy”, and that “if you’re not thinking about building your culture for survivability and sustainability, then you’re not leading”.

These are strong words, but nonetheless words of wisdom. I believe that what Prof Kanter says of business applies just as much to nations. Gross domestic product and employment figures are a lagging indicator. National culture predicts the course of progress and development of countries.

To deal with a future which is uncertain and rapidly changing, a culture of innovation is what Singapore needs to build up to be a nation of enterprise and innovation, especially in today’s context where technology and the world moves too fast.

This Bill reflects a desire to be innovative but in a suitably cautious manner. However, the very essence of innovation means much of the innovation may not succeed in the end. We need to be willing to try, to change as we go along, and even to abandon what we started off with. If we are too cautious, we would undermine the innovative spirit itself, and fail to promote a widespread national culture of innovation so necessary to propel Singapore ahead.

With that word of caution and encouragement, Mr Speaker, I support this Bill.

3.48 pm

Ms Anthea Ong (Nominated Member): Mr Speaker, before I start, may I once again invite the House to take a 3-breath 30-second mental pause with me. Thank you for your indulgence.

Mr Speaker, Sir, I am in support of the Bill. The payments landscape has changed considerably with the introduction of various types of payment services. The Payment Services Bill seeks to broaden the scope of regulated activities and allow for separate regulatory frameworks for major payment institutions and smaller players.

However, please allow me to highlight a significant area of consideration in the implementation of the said Bill and related regulations.

According to a World Bank Report published in April 2018, migrant workers in Singapore sent a grand total of at least US$5.6 billion in remittances to the top five remittance destination countries alone. These countries were China, Malaysia, India, Pakistan and Indonesia.

Mr Speaker, I am sure we will all agree that US$5.6 billion – and that is just the remittances to five countries – makes our migrant workers a decidedly significant stakeholder in the payments landscape. It is, therefore, not just the right, but also the smart thing to do for us to be intentional and inclusive of their banking and payment needs.

The one million migrant workers on work permit rely on payment and remittance services to pay their existing debts and transfer money to their families. Yet, current options to remit money are limited. Many work punishing hours with only Sundays off, which they then spend travelling long distances to queue for hours to perform remittances, rather than resting.

While most of us have registered bank accounts with financial intermediaries that afford us an array of payment and e-banking options with financial technology, we must not forget the people who do not. Take, for example, Iris, a domestic worker from the Philippines. She does not have a bank account because: a) she remits her money in cash, a total of$800 to $1000 every month at Lucky Plaza to support her two sons in college; and b) most banks have a prohibitive minimum balance, under which account holders have to pay Fall Below Service Fees. Without a bank account or a digital wallet, Iris is excluded from our financial e-transaction system. She is not alone. According to a report by KPMG, 75% of foreign domestic workers are paid in cash.

In addition, remittance agencies charge $5 to $12 for every transaction. This chips away at the already low wages these workers receive. High remittance charges and the lack of remittance options also cause workers to turn to illegal means to remit their money, in addition to the need for money to reach their families urgently in times of emergency.

Allow me to share the experience of Nayan, a Bangladeshi, who did not resort to these illegal options when he encountered an emergency situation, yet paid a hefty price nonetheless. Nayan’s mother suffered a stroke and needed to be admitted to a city hospital with better facilities. Unfortunately, this happened during a work day so he could not remit the money immediately until he completed his basic duty at 4.30pm before heading to a remittance centre in Farrer Park. The treatment was, therefore, delayed for his mother, creating implications for her chance of a full recovery. Further, Nayan had to forgo 5.5 hours of overtime work which resulted in loss of income for him.

I am sure we will all agree that what I have just shared about Iris and Nayan can be called anything but effective. It is the elephant in the room in our quest towards building a Smart Nation, a cashless economy, and an inclusive society.

Mr Speaker, heeding the call made earlier by Minister Ong to encourage greater adoption of e-payments, there is an urgent need for financial inclusion and greater adoption of e-payments for our migrant workers. Employers of S-Pass holders – those earning $2,200 and above per month – are required to pay their salaries through electronic means, but this requirement is not extended to the one million employees who are Work Permit holders, a lower wage category. Work Permit holders can request for electronic payments from employers by law, but many refrain from doing so for fear of job loss and repatriation. Yes, some may, indeed, prefer to receive cash, but many whom I have spoken with do that because they do not know any other trusted options, yet.

Mandatory electronic payment of salaries by employers will automatically allow for one million migrant workers to be part of our financial system so they do not remain unbanked or underbanked as rapidly financial technology threatens to leave them behind. This gives them access to more payment and remittance options, lower or zero fees, as well as the benefits of speed and security. As an illustration of my point, the POSB's jolly app waives the fee – though it does state for a limited time only, so, hopefully that stays for a long time – for remittances made to India, indonesia, Bangladesh and the Philippines but requires employers to open bank accounts for wage payments.

Sir, I mentioned earlier that understanding the needs of our migrant workers is not only the right thing to do, but also the smart thing to do. US$5.6 billion is a significant opportunity for the FinTech sector to tap into for innovative products in e-payments. The Smart Nation question to ask is: how can we harness this Payment Services Bill to make this opportunity available to the thriving FinTech sector if the majority of these funds – the US$5.6 billion – are unbanked or existing outside of the e-payment system? Traditional financial institutions and newer players are collaborating to bring exciting new FinTech products and services to the market, and $5.6 billion in remittances by migrant workers is definitely one.

[Deputy Speaker (Mr Lim Biow Chuan) in the Chair]

We all know the fabled success of Grameen from Bangladesh in financial and social innovation for the unbanked and underbanked. Perhaps, if we include our migrant workers fully in our financial system, a FinTech equivalent of Grameen from Singapore might just be birthed.

Mr Deputy Speaker, it is easy to think of payment services as being merely transactional. Yet, for the many thousand migrant workers like Iris and Nayan, sending money home – efficiently, reliably and affordably – is a very human activity for them. It connects migrant workers to their families, gives them a sense of purpose for their struggles and, in some ways, empowers them to have dreams and aspirations for a better life. It is, therefore, a responsibility and opportunity for us to include them in the implementation of this Bill with legislation and education. After all, we know that the way forward for us as a Smart Nation goes beyond just the best laws and the latest payment technologies – it is how we stay human and inclusive.

Sir, I hope to hear from the Minister on our financial inclusion strategies and implementation, including but not limited to our migrant workers. Mr Deputy Speaker, I support the Bill.

3.56 pm

Mr Louis Ng Kok Kwang (Nee Soon): Sir, I stand in support of this Bill, which reflects the delicate balance that has to be struck between the Government’s roles of regulating risks and promoting innovation in the payments industry. This balance is struck by the calibrated approach taken in applying safeguards relating to standards of consumer protection, anti-money laundering controls, and cybersecurity. Beyond this, the Bill also recognises that regulation may be beneficial, even necessary, for competition and innovation.

In the 2016 Singapore Payments Roadmap report commissioned by MAS, the limited adoption of electronic payments was attributed to decentralised governance and lack of coordination of infrastructure. This suggests that the payment systems market, when left to its own devices, does not lead to the best outcomes for consumers. This Bill addresses this by providing MAS with regulatory powers relating to the interoperability, allowing the regulator to play the role of innovator as well. That said, I would like to seek some clarifications and make proposals for the businesses that raise funds through the Initial Coin Offers (ICOs).

Firstly, MAS had indicated that the Bill will regulate any entity, whether local or foreign, as long as it provides payment services and has a clear nexus to Singapore. Section 5(1) prohibits any person from providing any type of payment services in Singapore without a licence, if a licence is required. Many of the definitions of the various payment services refer to the provision of services to persons in Singapore, but the provider himself does not have to be in Singapore to be required to obtain a licence. Certainly, the provision of payment services that affect individuals in Singapore will raise similar risks, whether or not the provider is physically located in Singapore or overseas. Can the Minister clarify how it intends to enforce these provisions against non-Singapore businesses that do not operate in Singapore?

Further, these foreign businesses may already be regulated in their home jurisdictions. For instance, payment services based in Hong Kong would be subject to the Payment Systems and Stored Value Facilities Ordinance 2015, while those based in the United Kingdom are regulated by the Payment Services Regulations 2017. How would the local regime interact with those of other countries? For instance, would designations under foreign regimes be recognised in Singapore?

Next, in the Singapore Payments Roadmap report mentioned earlier, KPMG noted that the lack of interoperability between electronic payment systems was a cause of limited adoption and high costs of electronic payments. Establishing interoperability was a key topic discussed by the Payments Council at its inaugural meeting in August 2017.

The Bill addresses this by providing MAS the powers relating to access regimes, common platforms, and common standards. Section 25 and 26 give MAS broad powers to direct that payment service providers ensure interoperability between payment accounts and payment system, and between payment systems. Division 4 of Part 3 of the Bill allows MAS to impose access regimes to payment systems.

Alongside MAS’s regulatory powers, the Payments Council plays an advisory function and is tasked with promoting the interoperability of systems. It set up an industry taskforce in August 2017, which developed the Singapore Quick Response Code to consolidate multiple payment schemes.

Another agency which is concerned with innovation and competition in the payments industry is the Competition Commission of Singapore. The CCS has undertaken inquiries into alleged infringements by payment systems, clearing the NETS Affinity Programme of abuse of dominant position in 2007 and clearing VISA’s Multilateral Interchange Fee system of anti-competitive behaviour.

Further, CCS had commissioned the New Zealand consultancy company Castalia to study the competitiveness of card payment systems in Singapore. Can the Minister clarify how MAS will work with the Payments Council and the CCS in exercising its powers relating to interoperability?

Further, will the Minister look into establishing a regulatory body to exercise specific oversight over competition and innovation for payment systems? The Payment Systems Regulator in the UK provides a model for this. While there is also a general competition regulatory body, the Competition and Markets Authority, the PSR has a more narrow focus on payment systems.

The co-existence of the PSR alongside the CMA demonstrates that payment systems give rise to sufficiently unique competition concerns arising from the network effect to require a separate regulatory body.

Lastly, section 41 provides that MAS may require participants, operators, and settlement institutions to provide information relating to a payment system. This includes information relating to operations, pricing, participation, and any other information that MAS may require for the purposes of the Act.

Can the Minister clarify whether this would include information of payment systems users? If so, are there any limits on the information that MAS can require? For instance, would MAS be able to obtain aggregated user data or individually-identifiable information?

I also like to raise concerns about the ascendancy of ICOs which accompanied the rise of blockchain and cryptocurrency. ICO is a method of fundraising used by businesses to build blockchain-centric projects.

Based on a report by ICObench, an authoritative rating body, Singapore has the second highest number of ICOs on ICObench’s platform, with 524 ICOs launched and USD 2.1 billion raised. Both statistics indicate that Singapore is favoured by businesses seeking to raise funds through ICOs.

While platforms that issue digital tokens will be regulated under the proposed regime, those within the industry have expressed concerns to me that there should be greater regulatory oversight over businesses that operate on those platforms and raise funds by offering ICOs. According to a report by ICO advisory firm Statis Group 80% ICOs in 2017 were scams.

As such, I urge MAS to improve its regulatory coverage to build a more robust financial system for the growth of the ICO market. Will the Ministry consider the following proposals in future reviews of the payment services regime?

First, I propose that all businesses that conduct an ICO must register themselves with MAS. MAS should maintain a central registry of key persons involved in an ICO. Presently there is no way for investors to conduct background checks on founders of businesses with an ICO campaign. Such a central registry will help investors easily perform due diligence on their investments.

Second, MAS could conduct public campaigns to raise awareness about ICOs, its potential windfalls, and its pitfalls. This will improve retail investors’ ability to differentiate good projects from scams.

Finally, our legislation presently does not cover acts of wrongdoing in the conduct of a business that offers an ICO. For example, these businesses are not obliged to provide full disclosure in deployment of funds raised. This entails a risk of potential fraud and funds misuse. Would the Minister consider legislating to enforce penalties on fraud and funds abuse?

Sir, notwithstanding my clarifications, I stand in support of this Bill.

4.04 pm

Mr Ong Teng Koon: Mr Deputy Speaker, Singapore’s growth into the regional financial hub it is today can be said to be the result of its responsiveness in creating a regulatory environment that both encourages innovation and mitigates risks to the stability of the financial system. In this regard, the Payment Services Bill is a significant step in the right direction.

Firstly, the Bill integrates payment activities that are currently regulated by different legislations under one Payment Services Act.

At present, the Monetary Authority of Singapore regulates different types of payment services under the Payment Systems (Oversight) Act (Cap 222A) and the Money-Changing and Remittance Business Act (Cap 187). These regulated services include operating payment systems, stored value facilities, remittance business and money-changing services. The Bill will reorganise these services as account issuance service, e-money issuance service, cross border money transfer service, and money-changing service under a new activity-based licensing regime. Providers of the seven payment services prescribed in the Bill will be required to hold a licence based on the type of payment service that is provided.

The considerable changes to the payment services landscape have brought business models that blur the lines between regulated activities. By combining the PS(O)A and MCRBA, the Bill streamlines these payment services under a single legislative framework. This, in turn, ensures consistent application of laws to various payment activities, which is calibrated at an appropriate level according to the risks the activities pose. A consolidated approach also brings greater clarity to the regulatory regime.

Secondly, the Bill strengthens regulatory protection against risks and concerns that arise from previously unregulated payment activities.

The Bill comprises two parallel regulatory frameworks: (a) a designation regime that enables MAS to regulate systemically important payment systems for financial stability and efficiency reasons, and (b) a licensing regime that focuses on retail payment services facing consumers and merchants. The latter encompasses a wide range of new payment activities, which include domestic money transfers, merchant acquisition and the purchase and sale of digital payment tokens.

These activities ought to be regulated to ensure adequate controls against money-laundering and terrorism financing; provide safeguards against insolvency risks resulting in loss of funds owed to consumers or merchants; reduce fragmentation and limitations to interoperability; and minimise technology and cyber risks.

There are specific reasons for this. The anonymous nature of digital payment token transactions makes them particularly vulnerable to ML/TF risks. Moneys received from customers by domestic money transfer and merchant acquisition service providers should be segregated and safeguarded from insolvency risks. Different merchant acquisition service providers with a large user base puts interoperability, common standards and accessibility at risk. New payment services that are made possible by technology are just as, if not more, vulnerable to cybersecurity risks.

In this respect, the Bill allows MAS to impose risk-mitigating measures and requirements on licensees who conduct the activity that poses the identified risks. Consequently, gaps in the regulatory regime brought by these new payment services can be filled. Consumer protection is reinforced, which further engenders public confidence to use the services and encourages development.

Thirdly, the Bill provides MAS with the necessary regulatory flexibility to respond to changes in the fast-moving payments space.

As a result of the activity-based licensing regime, regulations can be tailored to the risks that specific payment activities pose for different business models. In addition, MAS has general powers over all regulated entities, such as powers to conduct inspections and investigations, and emergency powers. Key risk mitigating provisions include interoperability powers which MAS may exercise where necessary to reduce fragmentation of widely-used payment solutions, and the power to impose risk-mitigating measures for ML/TF purposes under the MAS Act (Cap 186). In turn, MAS is able to take a more flexible strategy to target risks as they arise and avoid overregulation that may stifle innovation.

Notably, the Bill gives MAS certain powers to make regulations and supplementary provisions to fulfil the Act’s purposes, and amend what would be regulated as a payment service under the Act. This accords MAS the flexibility to modify regulatory scope, and come up with new laws for novel and more sophisticated product offerings that may emerge in the future. MAS will be able to respond accordingly, such as quickly incorporating new payment activities that ought to be regulated into the regulatory framework. This helps to create a conducive environment for innovation, growth and development, without sacrificing consumer protection and stability in the financial system.

With that, Sir, I end my speech in support of the Bill.

Mr Deputy Speaker: Minister Ong.

4.10 pm

Mr Ong Ye Kung: Mr Deputy Speaker, I thank all the Members who have spoken on the Bill and their support of its introduction. On behalf of the Deputy Prime Minister and Minister-in-charge of MAS, let me now address their questions.

Let me start with customer protection. Mr Saktiandi asked about how customer monies are protected by payment service providers if they go insolvent and I have explained in my speech that major payment institutions are required under the Bill to protect customer monies under prescribed methods.

Mr Saktiandi was also concerned that services like limited purpose monetary value and loyalty programs are excluded from the regulatory ambit of the Bill. The Bill governs the provision of payment services. So the issuance of stored value cards like EZ-Link card or NETS cash card that can be used to pay for various goods and services will be regulated as a type of payment service and customer monies in those cards will be protected under the Bill.

However, limited purpose monetary value like supermarket shopping vouchers and loyalty programmes like airline frequent flyer miles, cannot ordinarily be used to pay for goods and services provided by unrelated third parties. Likewise, prepayments to bike sharing platforms for their services are also not payment services. So all these activities are excluded from the ambit of the Bill. This is the approach taken by jurisdictions such as Australia, Hong Kong and the United Kingdom too.

On a technical point, Mr Mohd Irshad asked for the location of e-money and virtual currency definitions in the Bill. These terms are defined in the interpretation clause of the Bill but we have changed the term virtual currency to digital payment token instead, to accurately reflect the nature of these units as tokens and not currency.

Next, cryptocurrency. Mr Saktiandi and Mr Louis Ng asked about customer protection in cryptocurrency services and for initial coin offerings – or ICOs. Mr Leon Perera also asked about the approach and timeframe for regulating cryptocurrency services.

I explained in my speech that our intent currently is to regulate digital payment tokens (DPT) services only for money laundering/terrorism financing (ML/TF) risks. This is because the use of DPTs in Singapore is low compared to countries like the US, Japan, and South Korea. So, at the moment, we do not intend to regulate DPT services for customer protection. We also need to be mindful of what Mr Saktiandi pointed out, which is regulating DPT services for customer protection can have a legitimising effect, when digital tokens are still in a nascent stage of development. This may send the wrong signal that Singapore is promoting or welcoming such activities. Because we are regulating it, it actually gives people comgfort that this is a legitimate activity and gives the public false comfort that their DPT investments are safe. Similarly, running a registration system for ICOs, as Mr Louis Ng suggested, can also have a similar "legitimising" effect. MAS is monitoring this space and will continue to put out consumer advisories aimed to prevent investment losses upfront. MAS also continually updates its Investors Alert List to include entities that have been misperceived as being regulated by MAS.

In this regard, Deputy Prime Minister Tharman has also made it clear in Parliament earlier last year that DPTs like bitcoins are a very high risk investment. Investors may lose their shirts. To adequately caution investors, MAS will require DPT service providers to disclose clearly to their customers that their investment is not subject to regulatory protection.

Mr Louis Ng asked if we would consider penalties for fraud and misuse of funds raised by ICO issuers. There are existing penalties for such illegal activities and they are administered by the Singapore Police Force.

Prof Lim Sun Sun, Mr Leon Perera and Mr Louis Ng pointed out that consumer protection should also extend to consumer education. Prof Lim proposed public education to communicate the advantages of using e-payments and good personal financial habits. Mr Saktiandi expressed that we should include senior citizens and the less tech savvy among us in our e-payments journey.

I am happy to report that MAS and other agencies have been reaching out to the public on these fronts. Through MoneySense, the national financial education programme, MAS has been working to raise public awareness on using e-payments safely and responsibly and we will continue to do so. The public sector is also raising citizens’ digital literacy and familiarity with new technologies, through initiatives such as IMDA’s digital inclusion programme, and the SkillsFuture for Digital Workplace programme.

On financial inclusion, Ms Anthea Ong highlighted the difficulties faced by migrant workers in accessing e-payment solutions and bank accounts. As she noted, payment firms are collaborating to bring new FinTech products to the market. Indeed, FinTech has enabled us to remit money overseas via e-wallets. They are easy to use, usually free, with no minimum balances required. As this Bill strengthens safeguards for these payment services, we should see greater adoption from consumers, including migrant workers.

At the same time, banks are working on enhancing financial inclusion for migrant workers. For example, POSB has partnered with MOM to enable foreign domestic workers to open bank accounts seamlessly when they submit their online Work Permit applications. The initial deposit is waived for these POSB Payroll Accounts which also provide low-cost remittance services. MOM is currently consulting stakeholders on the option of mandating electronic salary payment for migrant workers. This is not just that this is a $5.6 billion market but I think this is the right thing to do.

Next, Assoc Prof Walter Theseira and Mr Saktiandi asked about business competitiveness, and said that financial institutions should not be overly burdened by new rules. They asked how the Bill compares to those in other jurisdictions. The Bill contains similar aspects to regulatory frameworks in other financial centres such as Australia, Hong Kong and the United Kingdom. What this Bill sets itself apart from other jurisdictions is that it comprehensively covers four risks identified in the payments landscape in a single legislation. In other jurisdictions, these risks are addressed by different authorities under different pieces of legislation.

As explained in my speech earlier, MAS has consciously balanced mitigating risk with promoting innovation. The best way to do this is to avoid a one-size-fits-all approach, and instead adopt a risk-based approach, such that the regulatory requirements are commensurate with the risks of the business activities, and that is why we have three licence classes in this Bill.

In the Second Reading speech, I explained how a major payment institution can provide services above specified thresholds. Assoc Prof Walter Theseira asked why the thresholds are not in the subsidiary legislation and in the main Bill. Indeed, specifying thresholds in the subsidiary legislation – it is actually easier for MAS – it gives us flexibility and more administrative ease, but to the market, it may mean less certainty. On balance weighing this, and this being a new Bill, we err on the side of giving certainty to licence applicants and licensees, and set out the licence class determining thresholds in the Bill itself. MAS can still amend it, through this House, should we need to in future.

Regarding transitional arrangements and if 12 months was sufficient, in the public consultation, almost all entities who asked for a longer transition period requested a 12-month period, and so MAS agreed that this is a sensible timeline.

Mr Saktiandi correctly noted that Singapore has been fully supportive of the G20 and the Financial Action Task Force. Taking our AML/CFT commitment seriously is something we must do, to maintain the integrity and reputation of our financial system. However, we will take care to calibrate our AML/CFT measures using a risk-based approach too. We will consult the industry with the proposed measures to ensure that the measures are risk-appropriate and fit-for-purpose.

Mr Louis Ng asked if MAS has powers to obtain information of individual payment system users from private entities. As a regulatory and enforcement agency like all others, MAS has such powers but like all the other enforcement and regulatory agencies, we will exercise them judiciously, for the purposes of this Bill. For example, MAS may require demographics of individual users to determine any gaps in access to payment services by any particular population segment, or we may request for such data for the purpose of investigation of a breach of law.

Mr Saktiandi and Mr Leon Perera also asked about the rationale and considerations for arriving at the proposed stock and flow caps on personal e-money accounts, and if these limits could be prohibitive. I have explained the rationale for having the caps in my Second Reading speech, and that this is important to preserve stability of the financial system to prevent a significant outflow from the banking system.

As to why they are set at $5,000 and $30,000, these were calibrated after in view of a few considerations. First, most e-money issuers have self-imposed stock caps of less than $1,000. Second, based on data from the last Household Expenditure Survey conducted and after adjusting for annual growth rates, the average monthly and annual household expenditure per household member in the 61^st to 80^th percentile group, is around $2,000 and $24,000 respectively. The proposed amounts therefore provide sufficient headroom for most individuals, even if they were to pay all their expenses of the month, out of one e-money account.

Nonetheless, these are initial numbers, and we can review over time. And as suggested by Mr Leon Perera, MAS is also prepared to grant exemptions by way of regulations to facilitate specific customer needs. MAS will soon be consulting on the regulations, and will consider any further industry feedback.

Assoc Prof Walter Theseira also asked something about fit and proper checks. The tech industry can be assured, that this is a nascent industry, we do understand for FinTech companies, the founders are often of technology background, but we also recognise that as they grow, as they serve bigger customers and become a bigger institution, they also start to recruit more diverse talents into their home, into their leadership team including those with banking and financial service experience. So, it is an evolving criteria and MAS will constantly review that to make sure they keep up with times.

There are other measures that MAS will set out in subsidiary legislation that will be published for consultation. These include the annual fees that Mr Mohd Irshad asked about. These also include the measures that Mr Leon Perera and Mr Saktiandi asked about, such as the obligations for disclosures to end customers, and the steps that standard payment institutions must take when they exceed specific thresholds for their licence class, including suitable grace periods and the need in order to be upgraded to a higher licence. We will take all your comments into accounts regarding the specificity of the disclosure with customers.

Mr Louis Ng asked how MAS intends to enforce provisions against foreign established licensees and whether foreign regulated payment firms would be recognised in Singapore. Anyone carrying on a business providing payment services in Singapore needs to hold a licence under the Bill, unless it is exempted. The Bill requires all licensees, local and foreign – foreign to have local presence, that is, to have a physical place of business or registered office in Singapore where customers can seek redress and where MAS can access the licensee's books. Further, licensees must have at least one executive director who is a Singapore citizen, a permanent resident, or a person in a prescribed class.

Mr Saktiandi has provided feedback that payment service providers, including DPT exchanges or service providers have had their bank accounts closed. I should clarify that most payment service providers do not have problems opening and maintaining corporate accounts with banks. To help firms that have faced such difficulties, MAS has been facilitating discussions between banks, FinTech firms and DPT service providers. While MAS does not intervene in the commercial decisions of financial institutions, such discussions should lead to positive and meaningful outcomes.

There are a number of questions on the limitations of activities of payment service providers. Mr Saktiandi pointed out that Hong Kong has a more liberal regime and is considering to allow payment services providers to offer banking services. What Hong Kong is doing is to issue digital banking licences, with regulatory requirements that are much higher than pure e-payment services firms. In Singapore, banks too can opt for a fully digital business model. Indeed, today Singapore residents can already open a bank account with any of the local banks and operate it without having to visit a branch.

The real question is whether there are benefits for Singapore to increase the number of banks in Singapore by admitting primarily digital start-up banks. This is a broader banking policy that has to be studied carefully, and quite distinct from the Bill. Assoc Prof Walter Theseira, Mr Mohd Irshad and Mr Leon Perera all asked about cash withdrawal and lending measures for licensees.

In the Second Reading speech, I explained why we are not prepared for licensees to offer such services. Essentially, these are core functions of banks which have a unique economic role. They are intermediary for savings and investments. They take in deposits and then on lend to the economy as I have explained in my Second Reading speech. To allow e-payment service providers which are subject to much lower thresholds and much lower regulatory regime to be able to provide lending activities, I think undermines the position of banks and undermines the role of the banks, and too likewise, for the thresholds that they can hold in the stock and cap. If you set too high, it can potentially also lead to a significant outflow of deposit and cash liquidity out of the banking system.

So, because of all these prudential consideration and stability consideration for our financial system, we prohibited such activities. We have not extended the same prohibition to cash withdrawal from non-resident e-wallets as Mr Leon Perera pointed out. This partly facilitates tourists' spending but more importantly, the non-resident e-wallets draw on the bank deposits from other countries and do not affect our banking system. It is also not just a matter of FTA compliance, but also a broader consideration for our banking stability. We are still learning about this whole industry, how it is evolving, but banks are an important part of our economy. We are taking quite a cautious approach at this moment, and the situation will continue to evolve and we have to consider it as time evolves.

Mr Mohd Irshad also asked about what plans the Government has to encourage innovation by financial institutions. To encourage innovation in financial services, we have the MAS regulatory sandbox. The sandbox is open to all firms that wish to experiment with a technologically innovative solution in financial services within MAS' regulatory ambit. And the sandbox options are being improved. MAS has proposed the creation of pre-defined sandboxes known as the Sandbox Express – easier and faster to get in and to get out.

Members also asked about Singapore's payment ecosystem and the competitive landscape of the industry. Mr Louis Ng asked if there should be a dedicated regulatory authority to oversee competition and innovation in the payment space. This is not necessary for us, because between MAS and the CCCS, we will cover the issues on competition in payment services. We have found this collaborative approach suitable to address any competition issues that may arise in Singapore. Assoc Prof Walter Theseira also asked how MAS will ensure competitive market exist for safeguarding services of FinTech firms.

This is actually quite a competitive service for the banks. Major financial institutions are also familiar with the standard of behaviour in the Singapore market, and we will not hesitate to act on complaints regarding any anti-competitive behaviour. As for the thresholds to enforce against anti-competitive behaviour, this is actually quite an involved process. It depends on the service, the players in the service, the size of the companies, the industry structure and the value chain. Each case is different and regulators have to make a fairly laborious determination based on the facts and the alleged anti-competitive behaviour.

Mr Saktiandi asked when we can have a common e-payment platform and whether merchants affected by interoperability measures can expect assistance from MAS. As a small market, Singapore is especially susceptible to one provider dominating a market and abusing their position. We have therefore deliberately taken a different approach so as to allow more competition and innovation in the payments space. We then take steps to ensure open architecture and interoperability between different payment systems. With that, we enhance ease of use and convenience for consumers and merchants while allowing and promoting competition in the space. So, we very much share the wishes of Prof Lim Sun Sun, while being cognisant of the risks in a small market like ours.

As I have explained in my Second Reading speech, initiatives such as FAST, PayNow, unified point-of-sale, SGQR, they serve to achieve interoperability, convenience and ease of use. With all these in place today, I hope all of us as consumers also can realise how e-payment is functioning today compared to, say, a few years ago. It is actually quite easy to use now. E-payments can be made through a simple tap-and-go of your credit or debit contactless card, or your smartphone on a UPOS terminal. Sending money to your friend can be done quite easily with a few taps on your smartphone. With time, I am confident that e-payments will be even simpler to use, and more consumers will grow to trust and accept e-payments. Another thing that we are doing is to accept non-banks into the FAST system and a workgroup is ongoing to discuss this. With that, let us say, a non-bank e-wallet join FAST, what it means is that I can transfer my non-bank e-wallet money to my bank account and from my bank account, I can withdraw the money.

Mr Speaker, let me end by addressing Mr Mohd Irshad's question about where Singapore stands in digital innovation, and the need for us to have a culture of innovation.

Our standing is not too bad at all. We are a city state, unlike the US, China or even Indonesia with a huge market. We are a well regulated financial hub, and we ensure FinTech companies can operate in an environment full of opportunities and with certainty. Our annual Fintech Festival is the largest in the world – we did not plan it to be the largest but they turned out to the largest because FinTech firms want to come here so that they can network and promote their services to the financial industry, and for the FinTech firms, it is especially in view that they could promote their services to the large financial institutions and global institutions who are here in Singapore.

So, supporting the growth of major financial institutions and FinTech startups is therefore not a zero-sum game. They are all part of the financial eco-system. Understanding that, and taking a risk-focused, modular approach to regulation, will contribute meaningfully to Singapore's innovation culture. I understand Mr Mohd Irshad's broader points on culture and mindset. I do agree with many of the points he raised but those are beyond the ambit of this Bill. At some point, perhaps during an education debate, I will be more than happy to address some of the issues he raised. With that, Mr Speaker, I beg to move.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. – [Mr Ong Ye Kung]

Bill considered in Committee; reported without amendment; read a Third time and passed.

Mr Deputy Speaker: Order. I propose to take a break now. I suspend the Sitting and will take the Chair at 4.50 pm. Order.

Sitting accordingly suspended

at 4.33 pm until 4.50 pm.

Sitting resumed at 4.50 pm.

[Deputy Speaker (Mr Lim Biow Chuan) in the Chair]