New MAS Guidelines for Payment Service Providers

On July 26, 2024, the Monetary Authority of Singapore (MAS) announced significant updates to the Guidelines on Licensing for Payment Service Providers (the “Guidelines”), which took effect on August 26, 2024.

These revisions are crucial for both existing and prospective Standard Payment Institutions (SPIs) and Major Payment Institutions (MPIs) operating under the Payment Services Act (PSA). With a growing emphasis on enhancing compliance and regulatory clarity, the updated guidelines introduce a range of new requirements and clarifications that impact the application process for licensing as well as ongoing business conduct.

Key changes include the introduction of a legal opinion requirement, the need for independent assessments by external auditors, and enhanced expectations for compliance structures, particularly for entities offering digital payment token (DPT) services.

This article aims to provide an overview of these amendments, highlighting their implications for payment service providers navigating the regulatory landscape in Singapore.

Overview of key changes

Summary of changes affecting SPIs and MPIs

The guidelines now mandate a more rigorous application process for new SPI and MPI licenses, as well as for variations of existing licenses. Applicants are required to submit a legal opinion from a qualified law firm that details their business model and assesses whether their proposed services are regulated under the PSA. Additionally, an independent assessment conducted by a qualified external auditor is now a prerequisite for all new license applications and those seeking to provide digital payment token (DPT) services.

The MAS has also introduced a structured review process for applications, including an opening meeting to discuss the application and the possibility of placing applications on hold if significant issues arise.

Importance of updates in enhancing regulatory clarity and operational standards

The updates to the guidelines are pivotal in enhancing regulatory clarity and operational standards for payment service providers in Singapore. By imposing stricter requirements for licensing, the MAS aims to ensure that only well-prepared and compliant entities enter the market. This not only fosters a more secure financial ecosystem but also protects consumers and investors by ensuring that payment service providers adhere to high operational standards.

Moreover, the emphasis on independent assessments and the establishment of in-house compliance functions underscore the MAS’s commitment to combating financial crimes such as money laundering and fraud. By requiring SPIs and MPIs to have robust governance structures and compliance arrangements in place, the MAS is setting a higher bar for accountability and risk management in the rapidly evolving payment services sector.

Changes to the licence application process

The requirement to submit a Legal Opinion (LO)

One of the notable changes is the new requirement for applicants to submit a Legal Opinion (LO) as part of their application. This requirement applies to both new applicants seeking an SPI or MPI license and existing licensees applying to vary their license to include a digital payment token service.

Key components of the LO must include:

• Business model summary: A clear and concise overview of the applicant’s business model, highlighting the nature and scope of their operations.
• Regulated services assessment: An evaluation of whether each proposed service and/or product qualifies as a regulated payment service under the Payment Services Act (PSA). This assessment should also determine if any exemptions or exclusions from licensing are applicable.

The MAS retains the authority to request a second LO if the initial submission lacks clarity or completeness.

Requirement for Independent Assessment by an external auditor

The MAS has also mandated that new applicants and those seeking variations to their licenses for DPT services undergo an Independent Assessment (IA) conducted by a qualified external auditor. This requirement, however, does not extend to notified entities that have previously notified the MAS under the Payment Services (Amendment) Act 2021.

Expectations for appointing external auditors include:

• Qualified auditors: Applicants must engage a qualified independent external auditor who possesses the necessary credentials and experience. The auditor’s scope of assessment will primarily focus on anti-money laundering (AML) and countering the financing of terrorism (CFT) policies, procedures, and controls, as well as consumer protection measures.
• Assessment scope: The external auditor will review the applicant’s internal policies, procedures, and controls (IPPCs), concentrating on areas such as governance, customer due diligence, suspicious transaction reporting, and safeguarding of customer assets. For applicants granted in-principle approval, an additional IA will be required in technology and cybersecurity risk areas.

New Case-On-Hold process for application reviews

The updated MAS Guidelines introduce a “case-on-hold” mechanism for handling applications that face delays due to significant changes during the review process. If an application is impacted by major developments—such as corporate restructuring, changes in senior management, or substantial shifts in the business model—it may be paused for up to six months. This period is designed to give applicants time to address these changes without disrupting the review process for other applicants.

The six-month hold is non-extendable, and it is the applicant’s responsibility to finalize any required changes and provide updated documentation to MAS within this period. If the changes are not completed by the end of the hold period, the application may be deemed insufficiently ready for further review, with MAS potentially recommending withdrawal. This system helps streamline the review process by prioritizing well-prepared applications.

Key Revisions to admission criteria and compliance standards

The revised guidelines also make adjustments to the admission criteria for payment service providers, particularly focusing on the fit and proper requirements, capital adequacy, and compliance structures.

Applicants are now expected to ensure that all key individuals—such as directors, senior executives, shareholders, and relevant staff—meet the fit and proper criteria. This includes evaluating their integrity, financial stability, and any potential conflicts of interest or competing commitments. The responsibility to demonstrate these qualities lies with the applicant, rather than MAS needing to disprove their suitability.

The updated guidelines emphasize the need for applicants to maintain a sufficient financial buffer in terms of capital requirements. This buffer should ideally cover 6 to 12 months of operating costs, ensuring that the business remains financially sound. Companies are also advised to have monitoring mechanisms to ensure compliance with capital requirements at all times.

Moreover, MAS has raised expectations regarding compliance oversight for companies offering digital payment token services. While previous rules allowed for external compliance support from parent or related companies, the new guidelines require the appointment of a dedicated in-house compliance officer within Singapore, reflecting the higher risks and complexities involved in this sector.

Conclusion

The recent updates to MAS guidelines offer clearer direction for payment service providers navigating the licensing process in Singapore, particularly those planning to DPT services in their applications.

Prospective applicants should be mindful of the time and costs involved in engaging these third-party experts, as their input is now essential for successful applications. Although the new guidelines don’t retroactively affect applications submitted before the deadline, MAS retains the right to request additional assessments for certain applications, depending on the level of risk or complexity. Applicants with pending applications should still review the updated guidelines to stay informed and ensure they are fully prepared for any further requirements.

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