Explanatory Brief: The Payment Systems (Oversight) Bill
1 The Minister for Education and Deputy Chairman, Monetary Authority of Singapore (MAS) today moved the Payment Systems (Oversight) Bill (the Bill) for first reading in Parliament. The Bill will be read for a second time and discussed at the next available Parliamentary sitting.
2 MAS conducted public consultations on the proposed regulatory framework for payment systems and stored value facilities (SVF) in Singapore in April 2003, and the draft of the Bill in December 2004. The feedback received has been incorporated, where appropriate, into the Bill.
3 The Bill is a new piece of legislation that provides for the new regulatory framework for payment systems and SVF in Singapore.
4 Payment systems are systems that facilitate the circulation of money and can include any funds transfer systems, instruments, and related business procedures and rules . They are the means by which monetary values are transferred around the economy, and form a critical part of market and economic infrastructure. Safe and efficient payment systems are important for ensuring the smooth functioning of the financial system and the economy.
5 MAS' current oversight framework for payment systems provides insufficient clarity on MAS' oversight objectives, roles and major policies in respect of payment systems. The existing framework also does not adequately address the increasing importance of non-financial institution players in the payment landscape.
6 The Bill provides a consistent basis for MAS to oversee payment systems in Singapore. At the same time, it allows MAS to adopt a risk-based approach by providing MAS with powers to designate payment systems that are important in terms of financial stability or public confidence.
Stored Value Facilities
7 In addition, the Bill provides for the liberalisation of the SVF market in Singapore. SVF are prepaid payment instruments used for the purchase of goods and services via stored values, and are most commonly used for low-value retail payments . Currently, the issuance of any form of multi-purpose SVF is restricted to banks only. To encourage competition and innovation among smaller-scale SVF, the Bill allows for any entity to hold stored value in respect of SVF, as long as the amount of stored value does not exceed the stated threshold (specified as S$30 million), subject to aggregation rules. Where the stored value is above the threshold, the holder of the SVF must be approved by MAS and a bank licensed by MAS must also be approved to be fully liable for the stored value.
Key Provisions under the Bill
Information-gathering Powers over All Payment Systems (Part III)
8 Currently, MAS' payment system oversight powers extend only to financial institutions. Under the Bill, MAS will have the power to gather information from all relevant parties in any payment system in Singapore. This will enable MAS to monitor trends and developments in the payment industry and fine-tune the oversight framework, where appropriate.
Designation of Payment Systems (Part IV)
9 MAS will have the power to designate payment systems that are considered important in terms of financial stability or public confidence.
Notification Requirements for Designated Payment Systems (Part V)
10 The operator and the settlement institution of a designated payment system will be required to notify MAS of certain events such as any material changes to rules and procedures, operational irregularities, potential insolvencies, or inability to meet obligations. In addition, an operator must notify MAS if it carries on or acquires substantial shareholding in any business other than the business of operating a payment system.
Imposition of Access Regimes (Part VI)
11 As part of MAS' objectives to foster the safety and efficiency of designated payment systems, MAS will have the power to impose an access regime so as to determine the rules for participation in a designated payment system. MAS will consider the interests of the public, the operator, current participants, and such persons that may require access to the designated payment system in future before imposing an access regime.
Supervisory Powers (Part VI)
12 The Bill gives MAS supervisory powers over the operators and settlement institutions of designated payment systems, including the power to inspect the books, and to require the submission of periodic reports. MAS will also be empowered to issue directions to or impose conditions or restrictions on the participants, operators or settlement institutions of designated payment systems.
MAS' Approvals for CEO, Directors and Significant Shareholders (Part VI)
13 The operator of a designated payment system will be required to obtain MAS' approval for the appointment of its chief executive officer or directors in Singapore, who are entrusted with the management of the operator. As significant shareholders can influence the management of the operator, a person who seeks to become a significant shareholder of an operator of a designated payment system must obtain MAS' approval.
Emergency Powers (Part VI)
14 The Bill provides MAS with powers to take expedient actions in relation to a designated payment system in an emergency situation. These include the power to appoint a person to advise the operator or settlement institution on the proper conduct of the operations of the designated payment system, for MAS to assume control of and carry on the operations of the operator or settlement institution, to require the operator to cease operation, to petition for the winding up of the operator or settlement institution, and to require the operator or settlement institution to take any action as MAS may consider necessary.
Information-gathering Powers in Relation to Stored Value Facilities (Part VII)
15 The Bill provides MAS with information-gathering powers over holders of stored value of any SVF. This is to enable MAS to monitor trends and developments in the SVF market, and fine-tune the oversight framework, where appropriate.
MAS' Approval Relating to Widely Accepted Stored Value Facilities (Part VII)
16 To encourage competition and innovation among smaller-scale SVF, the Bill allows any entity to hold stored value in respect of SVF, as long as the amount of stored value does not exceed the stated threshold (specified as S$30 million). The Bill requires the stored value of all SVF held by the same holder and the stored value of SVF held by related holders to be aggregated, since these SVF collectively pose a single risk to consumers. The S$30 million threshold may be varied by MAS to cater to future developments in the SVF market.
17 Where the stored value exceeds S$30 million, the holder of the SVF and a bank that undertakes to be fully liable for the stored value must be approved by MAS (such SVF are widely accepted SVF). This measure provides consumers some safeguards with respect to the stored values in widely accepted SVF.
Labelling of Non-widely Accepted Stored Value Facilities (Part VII)
18 MAS may make regulations for securing that non-widely accepted SVF be labelled with or accompanied by statements relating to certain matters. MAS will be requiring disclosure to users or potential users by way of written statements that the holder of the SVF is not subject to MAS' approval. This allows the users or potential users to be better informed and more appreciative of the risks of the type of facilities that they have purchased or are intending to purchase.An example of a payment system is the Singapore Dollar Cheque Clearing System. Payment systems include a system that operates SVF. Examples of SVF in Singapore include the NETS CashCard and the ez-link card.