The Monetary Authority of Singapore (MAS) published updates to its Guidelines on Licensing for Payment Service Providers [PS-G01] (the Guidelines), which will take effect on August 26, 2024. The revisions to the Guidelines are intended to improve clarity, streamline application reviews, and enhance the licensing process for payment service providers under the Payment Services Act 2019 of Singapore (the PS Act).

The key changes to the Guidelines include the introduction of a requirement for new payment service license applications to submit a legal opinion and for all variation applications to include digital payment token (DPT) services. Additionally, the MAS introduces the requirement for new payment service license applicants to submit an independent external auditor (EA) assessment and for variation applicants to carry out DPT services. Further, this LawFlash addresses MAS’s implementation of a case-on-hold process for payment services license cases that encounter issues requiring more time for the applicants.

KEY REVISIONS

Legal Opinion Requirement for New and Variation Applications

• All new applicants applying for a payment services license will need to submit a legal opinion with their applications. Existing licensees applying to vary their license to add a DPT service must also submit a legal opinion with their variation applications.
• In each case, the legal opinion should be issued by a law firm that has experience advising on the PS Act in Singapore and should include a clear and concise summary of the applicant’s business model and an assessment of whether the applicant’s proposed service(s) and/or product(s) are regulated payment services under the PS Act.
• MAS also reserves the right to require any other applicant to provide a legal opinion if warranted (e.g., complex business model).
• In all cases, MAS reserves the right to request for a second legal opinion if the initial legal opinion is unclear.

External Auditor’s Independent Assessment for New License Applications

• New applicants intending to provide DPT services[1] and existing payment services licensee intending to vary its license to add DPT services must appoint a qualified independent EA to perform an independent assessment of its policies, procedures, and controls in the areas of anti-money laundering/countering the financing of terrorism (AML/CFT) and consumer protection. The revised Guidelines contain further details on the assessment scope and EA criteria.
• The EA’s independent assessment report must be submitted together with the applicant’s license application and must have been issued and signed off by the EA within the last three months from the date of application submission.
• The onus is on the applicant to ensure that it appoints an appropriate and suitably qualified EA to conduct the independent assessment.[2] MAS reserves the right to require the applicant to appoint another EA to re-perform the independent assessment if there are concerns on the quality and/or comprehensiveness of the EA’s independent assessment, when performing the independent assessment, the EA must maintain independence from the applicant, and does not subject itself to any conflicts of interest situations.
• Each EA engaged by the applicant for the purpose of conducting the independent assessment is required to furnish information on its contact details, track record, and relevant experience and will be required to submit the necessary declaration that it meets the minimum criteria in experience and expertise and the work steps that it has undertaken.
• If the applicant is granted an in-principle approval (IPA), it will be required to appoint a qualified independent EA to perform an independent assessment of its policies, procedures, and controls in the areas of technology and cybersecurity risks as an IPA condition.

Case-on-Hold Process for Cases Under Review

• The revised Guidelines implement a case-on-hold process for cases under review that encounter issues requiring more time for the applicants to resolve.
• MAS reserves the right to place any application that is assessed to be insufficiently ready for review, to be on-hold for 6 months in the event of an applicant’s major corporate restructuring, substantial changes to key management personnel, or material variations in the business model/activities, at any point during the review process. The default on-hold period is 6 months and is not extendable. While such significant changes could be unforeseen on the applicant’s part, the on-hold period allows for resources to be redirected away from such incomplete applications, to ensure fairness to all other ready applicants in the queue.
• During this on-hold period, the onus is on the applicant to ensure timely resolution/completion of all necessary changes and to provide MAS with the relevant documentation to be assessed at the end of the on-hold period. If the significant change is not completed within the on-hold period, the application will be assessed to be insufficiently ready for review and the applicant should consider withdrawing the application.
• The updated Guidelines also set out the rules of engagement for the application review process, including guidance and its expectations in relation to the following: (1) the initial review and information request, (2) timeliness and quality of responses, (3) interview, (4) MAS’ review process (including placing applications on-hold and withdrawal of applications).

Changes to Admission Criteria

• Fit and Proper Requirement: The onus is on the applicant to ensure that the relevant persons (i.e., the applicant and its sole-proprietor, partners, directors, CEO, shareholders, and employees) (Relevant Persons) are fit and proper to the satisfaction of MAS, rather than for MAS to show otherwise. Other than honesty, integrity and reputation, competence and capability, and financial soundness, MAS will also consider other factors, such as whether there is any conflict of interest and time commitment the relevant persons have for the entity in Singapore.
• Base Capital: The revised Guidelines provide additional guidance on the requirement imposed on applicants to “maintain sufficient capital buffer in excess of the base capital requirement, bearing in mind the scale and scope of its operations and the potential for profit and losses.” As a rule of thumb, the base capital of the entity should be able to cover at least 6–12 months of the applicant’s operating expenses. The applicant should have an effective monitoring process in place to ensure it is able to always meet the base capital requirement (e.g., putting in place regular reporting or a specified capital buffer above the minimum requirement).
• Compliance Arrangements: Previously, it was stated that an applicant may obtain compliance support from an independent and dedicated compliance team at its holding company, or at an overseas related entity, as long as it can demonstrate that there is adequate oversight by the applicant’s compliance officer, sole-proprietor, partners, or senior management. Under the updated Guidelines, MAS has clarified that, notwithstanding this, expects entities conducting digital payment token services to have in place an in-house local compliance officer given the higher risk posed and the complexity of the business.

Concluding Remarks

The revised Guidelines bring greater clarity to the licensing process for payment services licenses and will better facilitate the preparation of payment service license applications or variation applications.

Prospective applicants who intend to apply for a payment services license from 26 August onwards should ensure that they consider the revised requirements and guidance provided in the updated Guidelines. In particular, prospective applicants who are submitting a new license application or variation application to add DPT services should ensure that it is able to obtain the necessary legal opinion and EA assessments from an appropriate and suitably qualified law firm and EA. The prospective applicants should also factor in the time that will be taken to appoint such third-party professionals and for them to prepare the necessary opinions and reports, as well as the additional costs that may be involved.

While the updated requirements do not apply to all relevant applications that are submitted before August 26, the MAS reserves the right to request, on an ad-hoc basis, a legal opinion or an independent EA assessment where it deems necessary, based on the risks and complexity of the applications. As such, applicants who have already submitted their applications to MAS may still wish to familiarize themselves with the revised Guidelines.

[1] Excluding entities that have notified MAS pursuant to the Payment Services (Amendment) Act 2021 (Saving and Transitional Provisions) Regulations 2024 (Transitional Regulations) and have been granted an exemption from holding a license under the PS Act for the payment services caught under the expanded scope of regulated activities for a specified period. All entities that have notified MAS pursuant to the Transitional Regulations are required to submit an attestation signed off by an external auditor on the applicant’s business activities and compliance with AML/CFT and user protection requirements before January 4, 2025.

[2] The updated Guidelines mention that the Institute of Singapore Chartered Accountants has collated a list of External Auditors that are open to conduct such independent assessments. However, they have cautioned that MAS does not endorse any of these External Auditors on the list and the applicant is ultimately responsible for assessing and appointing an External Auditor that meets the criteria and has relevant experience and expertise to perform the independent assessment. It is not mandatory to select from such list.

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