Oversight of Payment Services Firms that Promote a Selected E-currency Proprietary Token

In January this year, the Payment Services Act (the "Act") was passed in Parliament. It will strengthen MAS' regulation of payment service providers, while facilitating innovation in this area. Firms that provide any payment service as a business in Singapore, including issuance of e-money and sale of digital payment tokens, will be regulated under the Act when it comes into effect later this year.

The Act draws a distinction between e-money and digital payment tokens (DPTs), both of which can be used for payments. E-money is denominated in or pegged by the issuer to a national currency, whereas DPTs are not. A typical example of e-money is the value held in EZ-link cards. A major payment institution that issues such e-money will be required to safeguard customer monies, through measures, such as keeping them in a segregated bank account. So, customers here are not exposed to undue risks.

Assoc Prof Theseira is likely referring to DPTs rather than e-money. Firms that sell such DPTs must be licensed under the Act. MAS’ key regulatory intent with respect to DPTs is to address money laundering and terrorism financing risks which arise from the anonymity, speed and cross-border nature of DPT transactions.

The Act does not provide customers of DPTs the same level of regulatory protection as for e-money. For example, the monies that they pay in exchange for DPTs are not required to be safeguarded in a segregated bank account. It is, therefore, important for members of the public to understand that by adopting DPTs as a form of payment, they are exposed to the risk of the DPTs losing their value.

MAS has adopted this approach because DPT services are at a nascent stage of development and far from gaining mainstream adoption. Prematurely regulating these services for consumer protection may have a legitimising effect which can spur their acceptance and popularity, which we want to avoid.

Hence, MAS will require DPT service providers to make appropriate disclosures, including stating clearly to their customers, both individuals and merchants, that the product purchased is a DPT and is not subject to safeguarding protection under the Act.

MAS will be consulting the public on the proposed disclosure requirements in the coming months. In the meantime, MAS will continue to work with the media to highlight the risks of purchasing DPTs, including issuing advisories to warn the public of the risks. MAS is monitoring developments in this area closely to ensure that our regulatory framework remains relevant and effective.