Applying for a Payment Services Licence with MAS? Here is what you need to know

The Payment Services Act (PSA) came into effect in Singapore on 28 January 2020 and has streamlined the payment services regulatory framework under a single piece of legislation.

Making the decision to apply for a Payment Services L icence under the PSA involves considerable time, effort and money and requires the preparation and submission of Form 1 (Application for a Payment Service Provider licence), Form 3 (Application for the Approval of Chief Executive Officer, Director or Partner of a Payment Service Provider) and other supporting documents including a well-considered and thoroughly drafted business plan which is important to enhance the prospects of successfully obtaining a licence from the MAS.

With this article, we aim to provide you with guidance and a high-level summary of key requirements that you should be aware of before submitting a payment service licence application with the MAS.

What you need to apply for a Payment Services Licence with MAS

Determine the type of licence you need:

There are three classes of licences under which the MAS regulates.

1. Money Changing Licence – allows the licence holder to carry out onlymoney changing licence.
2. Standard Payment Institution – allows the licence holder to carry out any number of payment services if the activity falls below specified threshold limits*.
3. Major Payment Institution – allows the licence holder to carry out any number of payment services if the activity exceeds the specified threshold limits*.

Specified threshold – The thresholds are set out in section 6(5) of the Act and are, in summary:
— S$3m monthly transactions for any activity type
— S$6m monthly transactions for two or more activity types
— S$5m of daily outstanding e-money.

The following persons are exempt from the need to hold a licence to carry out payment services:

1. deposit taking institutions already licensed under the Banking Act, the Monetary Authority of Singapore Act or the Finance Companies Act; and – a person regulated or exempt under the Securities and Futures Act, the Financial Advisers Act, the Trust Companies Act; or
2. the Insurance Act if the provision of that activity is solely incidental or necessary for the carrying on of its regulated activity.

Note: Depending on your current or expected business volume, you should determine whether you will need a SPI or MPI licence – this is if you are conducting regulatory payment services besides money changing. If you expect to exceed the specified SPI thresholds in a year, you should apply for an MPI initially, rather than a SPI licence. This is because should you exceed the threshold, you will be required to apply for a license variation, taking considerable time, effort and incurring additional cost.

If you apply for an SPI, you will be expected to monitor your threshold limits at all times.

Ownership structure of the applicant:

• Sole Proprietor – must be a Singapore citizen and have min 1 year of relevant working or business experience on full time basis.
• LLP – majority of partners should be Singapore citizen and have min 1 year of relevant working or business experience on full time basis.
• Singapore owned Company – majority of the board of directors of the company should be Singapore citizens and have min 1 year of relevant working or business experience on full time basis.
• Singapore incorporated wholly owned subsidiary of a foreign bank/Company – possess a good track record and reputation and be adequately regulated and supervised by its home supervisory authority for AML/CFT.

• At least one Executive Director of the applicant should be a Singapore citizen or permanent resident: OR
• At least one Executive Director of the applicant is a Singapore Employment Pass holder and at least one other director of the applicant is a Singapore citizen or permanent resident

Note: A Company must be incorporated and registered with ACRA at the time of the application. It is not possible for MAS to process a licence application for an entity that does not yet exist.

Minimum base capital requirements:

Base capital Calculation means the sum of –

1. All of the following items in the latest accounts of the company:
   1. paid‑up ordinary share capital;
   2. paid‑up irredeemable and non‑cumulative preference share capital; and
   1. any interim loss in the latest accounts of the company; and
   2. any dividend that has been declared since the latest audited accounts of the company.

   NOTE: Base capital requirements should be met at the point of licence application. However, if the applicant has legitimate reasons why the entity cannot meet the requirements and have plans to raise capital (e.g. via fund raising), this needs to be elaborated in the application.

   Permanent place of business or registered office:

   You must have a permanent place of business or registered office in Singapore. This must be an office area where your books and records can be securely held. You must also appoint at least one person to be present to address any queries or complaints from customers for a minimum of ten days a month and a minimum of eight hours on each of those days during its normal business hours unless exemption criteria are met.

   Background of key persons:

   The applicant and its shareholders, directors and employees must all be fit and proper and be of sound financial standing, in accordance with the Guidelines on Fit and Proper Criteria [FSG-G01]. The applicant’s executive directors and Chief Executive Officer must have sufficient experience in operating a business in the payment services industry, or related areas in the financial services industry taking into account their roles in the applicant.

   Note: Executive directors should be involved in the day-to-day running of and making of executive decisions on behalf of the business or operations of the applicant. They are expected to be resident in Singapore to oversee the activities of the licensee. Nominee directors such as investors, legal advisers or corporate secretaries are not Executive Directors. Non-Executive Directors provide oversight as members on the Board of Directors, but are not involved in the day-to-day business or operations of the licensee. The job titles and designations of directors should reflect the substance of the role and responsibilities of the individual.

   Compliance arrangement:

   Option 1: Have an independent and dedicated in-house compliance function.

   Option 2: Outsource the compliance function to the head office or a related entity, if such head office or related entity has its own independent and dedicated compliance function.

   Note: In the Form 1 (Application for PSA licence), you are required to designate and mention the name and employment history of the compliance person. This person is expected to have sufficient expertise and authority to oversee the compliance function. If this person is yet to be employed at the point of application, he/she must, at the minimum, must have been identified at the point of application and must be employed and appointed prior to the applicant commencing business. Please note that at the time of review of application, MAS might interview this person to understand their knowledge of the MAS requirements.

   Policies and procedures:

   There are certain policies, procedures and systems that you are required to put in place (as listed below). If not, you are required to explain why you do not have these policies, procedures and systems.

   1. Anti-money laundering and countering the financing of terrorism – this needs to take into account, where applicable, the requirements and guidance under the MAS Notices PSN01, PSN02, PSN03 and their accompanying Guidelines
   2. Technology Risk Management – implementation of security measures to protect customer information in transmission and storage taking into account guidelines on technology risk management. In addition, if you intend to provide online financial services, you must perform a penetration test on the proposed online financial services, remediate all high-risk findings identified, and conduct independent validation on the effectiveness of the remediation actions.
   3. Business conduct requirements – these obligations include safeguarding of customers’ monies, record of transactions, issuance of receipts, adhering to the prescribed time period for transmission of money, display of exchange rate and fees, and notification of normal business hours, complaint handling. Note – refer to PSN07 – notice on conduct requirements and PSN08 – Notice on Disclosure and Communications.

   Note: As part of the application documents, at minimum you are required to submit (i) applicant’s AML policy (ii) enterprise-wide risk assessment and technology risk management policy. This is reviewed by the MAS case officer as part of their application approval process.

   • Transaction flow: As part of the application form you are required to attach a diagram to describe the beginning to end of a typical transaction, including any use of innovative technology as well as a discussion of the arrangements for customers to pay for or settle the transaction, including the payment of fees to the applicant.

   Note: Refer to appendix 3 Guidelines on Licensing for Payment Service Providers to understand expectation of the MAS on what a diagram flow should entail.

   Audit arrangements:

   1. Internal audit arrangements – you must have plans in place for adequate independent audit arrangements to regularly assess the adequacy and effectiveness of its procedures, controls, and its compliance with regulatory requirements.
   1. 1. Option 1 – can be conducted by an independent internal audit function within the Company.
      2. Option 2 – outsourced to applicant’s head office/related entity with an independent and dedicated internal audit function.
      3. Option 3 – outsourced to an independent third-party service provider.

      Note: This arrangement needs to be described as part of the application to the MAS. At minimum you are required to mention the name of the entity that has been engaged to conduct the audit for the applicant entity incase if the service is being outsourced. Before entering their name in the Form 1, you are required to ensure that you have a signed engagement letter in place with the outsourced service provider that includes the scope of audit.

      1. External audit arrangements – On an annual basis, appoint an auditor to carry out an audit of applicant entity’s accounts and transactions, and compliance with regulations and requirements.
      • Financial projections: At the time of the application, you are required to provide revenue and profitability projections for three years. This should commensurate with the business plan of your Company.

      Note: If losses are anticipated, you are required to explain how the losses would be funded.

      • Letter of responsibility: You will be required to provide a letter of responsibility issued by a parent company or a related entity (if any) accepting full responsibility for all the operations of the applicant.

      Note: At the time of the application, you will only be required to mention the name of the parent/related entity that will be accepting full responsibility. The MAS has not provided specifics as to the exact wording of the Letter of Responsibility required. The template is provided by the MAS once the application is approved by the MAS. In our view, this mainly includes giving an undertaking of maintaining an adequate oversight over the applicant’s operations, financial position, compliance with laws, management and other relevant issues.

      • Safeguarding arrangement: If you are applying for MPI licence, you are required to safeguard the relevant money in any of the following manner:

      Option 1 – obtain an undertaking, from a safeguarding institution, to be fully liable to the customer for the relevant money.
      Option 2 – obtain a guarantee from a safeguarding institution for the amount of relevant money.
      Option 3 – deposit the relevant money in a trust account maintained with a safeguarding institution.

      Note: The applicant is required to provide details of the intended safeguarding arrangement, including name of safeguarding institution and draft contract if available, and systems and/or processes that will be used to comply with the timelines in section 23 of the PS Act.

      Other factors taken into consideration by the MAS:

      1. track record and financial condition of the applicant entity, its holding company or related corporations, where applicable.
      2. operational readiness of the applicant, including ability to comply with regulatory requirements.
      3. whether the applicant, its holding company or related corporations are subject to proper supervision by a competent regulatory authority.
      4. commitment of the applicant’s holding company to operations in Singapore.
      5. whether the public interest will be served by granting a licence.

      How can Waystone Compliance Solutions assist?

      Waystone Compliance Solutions can assist firms with the application and authorisation process in addition to providing ongoing compliance support, once the licence has been granted. Our team of experts can also provide assistance with the drafting of policies and procedures as required.

      Please reach out to our APAC Compliance Solutions team or contact us below to find out how we can assist you.