Debated in Parliament on 14 Jan 2013.
Order for Second Reading read.
Mdm Speaker, I am speaking on behalf of the Deputy Prime Minister and the Chairman of the Monetary Authority of Singapore. Mdm Speaker, I beg to move, "That the Bill be now read a Second time."
The Payment Systems (Oversight) Act (PSOA) was first introduced in June 2006 for the oversight of payment systems and stored value facilities (SVFs) in Singapore. It provides the industry with regulatory clarity through a consistent and transparent framework. The PSOA also allows MAS to adopt a risk-focused approach to designate particular payment systems which are important for Singapore's financial stability and public confidence. These designated payment systems are subject to closer regulatory oversight. Examples of designated payment systems include the Singapore Dollar Cheque Clearing and the Inter-bank GIRO systems.
Madam, this is the first amendment to the PSOA since 2006. These amendments seek to enhance MAS' oversight over the designated payment systems. The amendments will also align Singapore's payment regulations with leading international standards, as set out in the Principles for Financial Market Infrastructures established by the Bank for International Settlements and the International Organisation of Securities Commissions.
MAS had consulted the industry on the proposed amendments last year. It considered all the views and feedback received, and took them into account in the amendments.
Mdm Speaker, let me now elaborate on the amendments to the Act.
First, section 3 of the Bill exempts MAS from Parts V and VI of the PSOA. MAS is the operator, settlement institution and regulator of the new MAS Electronic Payment and Book-Entry System (MEPS+). MEPS+ is designated under the PSOA as it is a systemically important payment system used for real-time settlement of large-value financial transactions between financial institutions in Singapore. It is of systemic importance because it means that a serious disruption in the operations of the payment system could trigger or
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transmit widespread disruption to Singapore's financial system and could even impact the economy as a whole.
As Parts V and VI of the PSOA are designed for commercial operators, this amendment will exclude Parts V and VI of the PSOA from applying to MAS. To ensure oversight of MEPS+ which MAS operates, MAS has formalised an internal arrangement where the oversight and operations functions are managed separately and have different reporting lines.
This arrangement is not unique to Singapore. Other central banks, such as the Bank of England and the Reserve Bank of Australia, that operate payment systems also rely on internal arrangements to ensure effective oversight over their own payment systems. A non-statutory oversight arrangement for central bank-managed payment systems is also consistent with international standards, as set out in the Principles for Financial Market Infrastructures. So I would like to assure this House that MAS will continue to hold itself to similar standards as those expected of a designated payment system under the PSOA through its internal oversight arrangement. The arrangement ensures that payment system oversight, internal audit and risk management assessments of MEPS+ are all conducted by departments separate from the MEPS+ operations department, each with direct reporting lines to senior management and Board.
Second, the amended section 27A of the Bill deals with confidentiality of reports as issued by MAS. This amendment will introduce a new section that provides an express provision for safeguarding the confidentiality of the information contained in the reports issued by MAS to the operator or settlement institution of a designated payment system.
This provision will align the PSOA with best practice internationally and allow MAS to enforce the confidentiality of its issued reports on recipients of these reports, such as an external auditor or consultant.
Finally, the new section 28 deals with the exercise of emergency powers by the MAS. This amendment will allow MAS to immediately exercise emergency powers in relation to an operator or settlement institution of a designated payment system during an emergency. An emergency situation can arise when the operator suddenly becomes insolvent, is unable to carry out its functions, or continues to operate the system in a manner that is detrimental to its participants.
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Under the existing emergency power structure, if the operator or settlement institution has failed to comply with a MAS-issued direction, a minimum period of time must pass before MAS can intervene. With this amendment, MAS will be able to take immediate regulatory action during a crisis as necessary to minimise any adverse impact on the participants of the designated payment system or the transmission of the crisis to the rest of the financial sector.
Mdm Speaker, let me conclude. This Bill seeks to strengthen MAS' oversight over designated payment systems and align MAS' regulatory framework for payment systems with international standards. MAS will continue to review its regulations and policies to ensure that they remain effective in preserving the safety, efficiency and the confidence of the public in Singapore's payment systems. Madam, I beg to move.
Question proposed.
Mdm Speaker, the payment infrastructure forms a critical part of our financial system, trade and economy. Thus, it is important that it is kept as safe as possible, transparent, stable and efficient for consumers. This Bill is necessary to streamline and enhance the financial oversight framework in Singapore.
I have a few clarifications to make. Firstly, on section 3, as MAS is both the operator and regulator in this case, and it is also not appropriate for MAS to take action and impose legal penalties upon itself, can I just ask who then regulates MAS?
Secondly, on the stored value facilities, the threshold is set at $30 million. This is not a small amount. Can I please enquire how this value was decided upon and arrived at?
Thirdly, with the Act, MAS will have to oversee all institutions involved in payment systems in Singapore. MAS will thus have to step up its supervisory framework. Will this mean that MAS needs to train and have more qualified staff? Do we project that we will have sufficient numbers of trained personnel in this industry?
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Fourthly, how about foreign exchange transactions and cross-border transactions? Will these be affected in any way by this amendment Bill?
Finally, Madam, in this day and age, there are indeed more payment services done over the Internet and mobile networks. These certainly pose added challenges to the oversight processes. Will this require MAS to develop or utilise some "security-specific" instruments?
Madam, considering the current climate we are operating in, all aspects of security, that is, the legal system security, financial system security, as well as technical and organisational systems security, are all fundamentals which need to be covered and protected according to internationally accepted standards. Pending all these clarifications, I support the Bill, Madam.
Mdm Speaker, I would like to thank Assoc Prof Fatimah Lateef for her support of the Bill and the very pertinent issues that she has raised. Allow me to address each of the key points in turn.
First, Assoc Prof Fatimah Lateef asked about the exempting of MAS from the Payment Systems (Oversight) (Amendment) Bill. As I mentioned earlier, central banks in most countries operate and oversee their large-value interbank payment systems. For example, central banks in the UK and Australia have both operational and oversight responsibilities for their large-value payment systems. I would like to assure Assoc Prof Fatimah Lateef and Members of the House that MAS' internal governance framework to maintain effective oversight of MEPS+ is in line with the best practices of these foreign central banks and also with leading international standards.
To elaborate on MAS' internal governance framework, I would say that there is a clear separation between the payment systems oversight and the MEPS+ operations function. The oversight and operations departments function independently and have separate management reporting lines to different senior management and Board committees. The Oversight Department ensures that MEPS+ has adequate risk management and controls for its system design, operations, processes and rules to ensure the safety and efficiency of the system. MAS will also have disclosure response of its system vis-a-vis leading international standards, and it will pose these disclosures on its website. So, there will be clear accountability on how MAS operates and
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regulates the system, compared to leading international standards.
Second, on the question of the threshold for stored-value facilities, Assoc Prof Fatimah Lateef asked why the threshold was set at $30 million. This threshold was, in fact, set when the Act came into force in 2006, so we are not changing the threshold with this Bill. At the time when the threshold was set, it was really to determine the appropriate balance between allowing for innovation in the industry and ensuring sufficient regulatory oversight. The $30 million threshold captures widely used stored-value facilities (SVFs) that have high volume and value of transactions. This threshold presently captures the nationwide multi-purpose SVFs in operation, namely the NETS cash card and the EZ-Link card. The stored-value facilities that are not captured are mostly small-scale ones which focus on niche areas, such as SVFs for the pre-paying of consumption of food and beverage, the use of fitness facilities or the purchase of electronic products.
Third, Assoc Prof Fatimah Lateef asked about increased supervisory works or requirements by the MAS. Again, let me clarify that there is no change in the extent of MAS' supervisory framework with this Bill. The amendments are administrative covering the issues of inspection report confidentiality, expedited emergency powers and the exclusion of MAS from the regulation of designated payment systems, as I have elaborated earlier. MAS will continue to adopt a risk-based approach to designated payment systems that are important for Singapore's financial stability and public confidence.
Fourth, Assoc Prof Fatimah Lateef asked about foreign exchange transactions and cross-border transactions and whether these would be affected in any way. The amendments proposed in the Bill do not affect the nature and flow of foreign exchange and cross-border transactions in Singapore's payment systems. So, there would not be any impact.
Finally, Assoc Prof Fatimah Lateef has rightly noted a very important issue that more payment systems are performed over online systems, such as Internet banking and mobile phones. MAS expects financial institutions to implement strong and robust security controls over their online banking systems. It has also actively engaged the industry to enhance IT security for payment services over the Internet and mobile networks. In addition, MAS issues technology risk management guidelines and security circulars to financial institutions, like the Internet and technology risk management guidelines and circular on two-factor authentication for Internet banking.
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Mdm Speaker, to conclude, the amendments to this Bill seek to enhance MAS' oversight over the designated payment systems and to align Singapore's payment regulations with leading international standards. These amendments will ultimately aid to improve the safety, efficiency and the confidence of the public in Singapore's payment systems.
*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 Lawrence Wong].*
*Bill considered in Committee.*
[Mdm Speaker in the Chair]
The citation year "2012" will be changed to "2013", as indicated in the Order Paper.
Clauses 1 to 4 inclusive ordered to stand part of the Bill.
Bill reported without amendment; read a Third time and passed.
PAPERCUTS