Introduction

The Monetary Authority of Singapore (MAS) has, on 26 July 2024, published amendments to its Guidelines on Licensing for Payment Service Providers [PS-GO1] (Guidelines). These amendments, which will take effect on 26 August 2024, introduce additional licence application requirements and rules of engagement, include amendments to align with the amendments made to the “Frequently Asked Questions on the Payment Services Act” as published on 19 April 2024, and provide greater clarity on the existing eligibility criteria and application procedures for payment service providers. In this article, we summarise the key changes made to the Guidelines.

Key changes to the Guidelines

1. Clarification on admission criteria

The following clarifications were made to the admission criteria for applicants:

1. In satisfying the fit and proper criteria, the onus is on the applicant to ensure that the relevant persons are fit and proper to the satisfaction of MAS. Other than honesty, integrity, reputation, competence, capability and financial soundness, MAS would also consider other factors such as whether there is any conflict of interest and time commitment the relevant persons have for the Singapore entity.
2. The criteria for competency of key individuals has been clarified to include not only sufficient experience in the payments/financial services industry, but also having sufficient understanding of the regulatory framework for payment service providers in Singapore.
3. Insofar as the base capital requirements are applicable for an applicant, the Guidelines clarify that to fulfil such base capital requirements, the applicant must demonstrate clearly how it will meet the requirements on an ongoing basis. The base capital of the entity should also be able to cover at least 6 to 12 months of the applicant’s operating expense. The applicant should have an effective monitoring process in place to ensure that it is able to meet the base capital requirement at all times, such as incorporating regular reporting or having a specified capital buffer above the minimum requirement.
4. In respect of compliance arrangements, the Guidelines clarified that MAS will consider not only whether compliance arrangements are effective, but also the adequacy of compliance resources. While applicants may generally still meet such criteria through compliance support from a holding or related entity with adequate oversight, MAS made clear its expectation that applicants conducting a digital payment token (DPT) services must have an in-house local compliance officer in light of the higher risks and complexity of their business. Criteria has also been clarified to include proper governance structures for oversight of compliance and anti-money laundering/ financing of terrorism issues, and demonstration by senior management and compliance officers of sufficient understanding of the compliance and money laundering/ financing of terrorism risks which the applicant faces in relation to its business activities and the measures the applicant has put place to effectively manage such risks.

2. Introduction of a new legal opinion requirement for new applications and variation applications 

All new applicants applying for a Standard Payment Institution (SPI) licence or a Major Payment Institution (MPI) licence, as well as existing licensees applying to vary their licence to add a DPT service, would be required to submit a legal opinion together with their new applications or variation applications, as the case may be. In each case, the legal opinion should: 

1. be issued by a law firm experienced in advising on the Payment Services Act 2019 in Singapore;
2. include a clear and concise summary of the applicant’s business model; and
3. include an assessment of whether the applicant’s proposed service(s) and/or product(s) are regulated payment services under the Payment Services Act 2019, and if applicable a detailed explanation of how any relevant statutory exemption/exclusion applies.

MAS may also require any other applicant to provide a legal opinion where warranted (for instance, if the application involves a complex business model). In all cases, MAS reserves the right to request for a second legal opinion if the initial legal opinion is unclear.

3. Introduction of a new requirement for an external auditor’s independent assessment for new license applications

New applicants intending to provide DPT services (save for entities who have notified MAS pursuant to the Payment Services (Amendment) Act 2021 (Saving and Transitional Provisions) Regulations 2024) as well as licensees intending to vary its licence to add DPT services must appoint an independent external auditor to perform independent assessments of its policies, procedures and controls in the areas of Anti-Money Laundering/ Countering the Financing of Terrorism (AMT/ CFT) and consumer protection, and include such external auditor’s report in their relevant submission. 

The applicant bears the responsibility of ensuring that the external auditor is appropriate and suitably qualified in conducting the independent assessment. Further details on the assessment scope and external auditor criteria, which include the minimum requirements on qualifications, credentials and track record, as well as independence, are detailed in the Guidelines. The external auditor’s independent assessment report must be issued and signed off within the last three (3) months and submitted together with the applicant’s licence application. The policy and procedures, and other documents reviewed by the external auditor must be the same version as that submitted by the applicant as part of its application. During the independent assessment, the external auditor must maintain independence from the applicant and ensure that it does not subject itself to conflicts of interest situations.

Each external auditor engaged by the applicant is required to furnish information on its contact details, track record, relevant experience and submit a declaration that it meets the minimum requirements in experience and expertise, as well as the work steps they had undertaken. 

MAS reserves the right to require the applicant to appoint another external auditor to re-perform the independent assessment if concerns arise on the quality or comprehensiveness of the external auditor’s independent assessment. MAS may also engage applicants directly to discuss observations in the report.

If the applicant is granted an in-principle approval, it would be required, as a condition of such approval, to appoint a qualified independent external auditor to perform an independent assessment of its policies, procedures and controls in the areas of technology and cybersecurity risks.

The Guidelines also highlight MAS’ requirement for entities operating under transitional licensing exemptions for newly regulated activities in 2024 to submit an attestation by an external auditor as to the applicant’s business activities and compliance with AML/CFT and user protection requirements before 4 January 2025.

4. Rules of engagement for the application review process

The Guidelines also provides clarity on the application review process by providing a run-through of the various stages in the process, the timelines involved and MAS’s expectations for applicants.

During the initial review process, a case officer may be assigned to the applicant who will reach out to the applicant on the next steps, which may include an initial meeting. The case officer will review the complete set of submitted documents and prepares an initial round of information requests. In the course of the review, applicant may receive multiple rounds of requests for information and clarifications, depending on the completeness of responses submitted by the applicant. The applicant is expected to have a contact person available at all times to follow up on the information requests and provide an adequate response on a timely basis. Applicants should proactively and fully disclose all material information without suppression to the case officer in a timely manner and use reasonable care to ensure that information and documents provided to MAS are not false or misleading. Failure to response within the MAS-stipulated deadline will be deemed as a withdrawal of the application. Should additional time be required, the applicant should inform the case officer in advance. 

After the initial review, the case officer will arrange for an interview with the applicant’s key management personnel and/ or compliance officer. The purpose of the interview is for the applicant to explain how it intends to manage the business and risks in compliance with regulatory requirements. Consultants, external legal counsel and other third parties are not permitted to attend the interview.

An applicant is expected to conduct itself as if it were a regulated financial institution even during the application stage. Case officers will review applications with this expectation, and significant deficiencies in conduct may lead to the rejection of the application.

Applications may be put on hold in the following situations – (a) when there are significant or material changes to the application, when applicants may wish to consider withdrawing their application and reapplying after the changes have been completed, or (b) when the MAS places on hold any application that is assessed to be insufficiently ready for review, to be on-hold for six (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 or activities, at any point during the review process. This is to ensure resources to be redirected and ensure fairness to other ready applicants in the queue. 

Conclusion

The amendments to the Guidelines provide greater transparency to the licence application process and requirements. It also shows the intent to ensure that applicants are in an advanced state of readiness and compliance with the licence application requirements so as to accelerate and increase the efficiency of the licence application process for both the MAS and the applicant. Applicants who are not ready will risk having their applications put on hold or even advised to be withdrawn. Prospective applicants should familiarise themselves with the amended Guidelines in determining their readiness for application. At the same time, applicants who are in the midst of a licence application should also consider the clarified expectations of the MAS in ascertaining the state of their application or whether additional resources would be required.