Published Date: 16 January 2006

The Payment Systems (Oversight) Bill

Second Reading Speech by Mr Tharman Shanmugaratnam, Minister For Education and Deputy Chairman, Monetary Authority of Singapore

Mr Speaker Sir, on behalf of the Senior Minister, I beg to move. "That the Bill be now read a second time."

2   Sir, the purpose of this Bill is to introduce a new framework for the oversight of payment systems.  The framework also covers the regulation of stored value facilities (SVF), which refer to prepaid cards and other payment instruments used for the purchase of goods and services.  MAS has consulted the industry and the public on this framework and the feedback received has indicated broad support for it.  MAS has incorporated the feedback received into the Bill, where practicable and where they are in line with its objectives.


3   Let me now set out the rationale for a new regulatory framework for the oversight of payment systems and SVF in Singapore.  I will start with payment systems.

Payment Systems

4   In Singapore, we have a well-developed payment system industry, consisting of a wide-ranging spectrum of payment systems to cater to a variety of purposes.  These payment systems can be broadly categorised into three tiers. 

5   The top tier comprises Singapore's large-value payment system, the MAS Electronic Payment System (MEPS).  Currently, MEPS is owned and operated by MAS, and functions as the main payment system for settling large-value financial transactions between financial institutions.  MEPS is also linked to an international grid of large-value payment systems via the Continuous Linked Settlement (CLS) system, which is a global foreign exchange (FX) settlement system.  The values settled in MEPS in 2004 exceeded 70 times Singapore's GDP so it is easy to see how a disruption in MEPS can have a systemic impact on the financial system and the economy. 

6   The middle-tier comprises Singapore's cheque-clearing systems and the Interbank GIRO system.  While these systems process payments that are lower in value compared to MEPS, the values involved are not insignificant, and the payments comprise important business and retail transactions such as salary and bill payments.  As they are closely tied to a wide range of economic functions, the safety and efficiency of these systems are important for maintaining a high level of public confidence in Singapore's financial system. 

7   The third tier is made up of retail payment systems that handle the majority of payment transactions in Singapore in terms of transaction volume.  These include systems such as debit and credit card systems, ATM networks, as well as mobile and internet payment systems.  As such systems generally process low-value retail transactions, they have lesser impact on financial stability.  Efficiency and innovation for retail payment systems are essential if we are to keep our economy vibrant and meet consumer needs.

8   Taken as a whole, the payments infrastructure forms a critical part of our financial system and economy.  It is therefore important that we ensure that payment systems operate in a safe and efficient manner, while encouraging market competition and technological innovation to serve businesses and consumers better. 

9   MAS and the industry have been involved in several projects to enhance the safety and efficiency of payment systems in Singapore.  In 2002, MAS implemented legislation to provide for the finality of transactions within large and systemically important systems such as MEPS and CLS.  The industry also implemented several initiatives aimed at improving the efficiency of the Interbank GIRO and cheque-clearing systems, such as the eGIRO system in 2001 and the Cheque Truncation System in 2003, both of which eliminated inefficient manual processes.

10   A new regulatory framework for payment systems is needed for two reasons.  First, MAS' current oversight framework for payment systems relies on legislation introduced on a piecemeal basis and an informal and cooperative arrangement with the industry.  From the industry's point of view, a more formalised and comprehensive approach would provide greater consistency and clarity in MAS oversight objectives and policies.  Second, the existing framework worked well when financial institutions were the traditional payment service providers, but has become less effective now that payment service providers which are not financial institutions are becoming increasingly common. 

11   Sir, the Bill will establish a new regulatory framework for payment systems that will provide MAS with a comprehensive and consistent basis to effectively oversee the payments infrastructure in Singapore, while promoting a competitive marketplace among payment service providers.  

12   A number of jurisdictions, such as Australia and Canada have introduced comprehensive legislation for the oversight of payment systems a few years ago.  Hong Kong did so about a year ago. 

Stored Value Facilities

13   Sir, I will now speak on SVF.  These are prepaid payment instruments, most commonly used for low-value retail payments.  In Singapore, there are two nation-wide SVF, namely the NETS Cashcard and the ez-link card, and several smaller-scale SVF such as gift cards and store vouchers. 

14   SVF can be categorized as either single-purpose or multi-purpose.  Presently, only banks are allowed to issue multi-purpose SVF, that is, instruments which can be used to purchase goods and services provided by third-party merchants other than the issuer.  However, multi-purpose SVF when operated on a small scale present low risk in terms of potential loss of stored value to their users.  The existing regulatory regime is therefore unnecessarily restrictive.  We should give the market more flexibility to meet consumers' needs, and encourage competition and innovation among different providers. 

15   The Bill introduces a new regulatory regime that liberalises the multi-purpose SVF market.  Any entity will be allowed to issue multi-purpose SVF to consumers and to hold the stored value, as long as the amount of stored value does not exceed a stated threshold.  Where the stored value is above the threshold, the holder of the stored value must be approved by MAS and a bank licensed by MAS must also be approved to be fully liable for the stored value.  In this respect, users of these larger SVF schemes, which the Bill terms widely accepted SVF, will benefit from some protection on their stored value.

16   MAS does not intend to subject single-purpose SVF to the stated threshold.  They will not need MAS' approval to issue the SVF and to hold the stored value.  This is also the current position under the law.

17   Sir, in liberalising the SVF market, MAS will put in place several measures to enable users or potential users to be better informed and more discerning of the risks associated with the SVF that they intend to purchase. For the smaller SVF schemes, MAS intends to require clear written disclosure to users that the holder of the stored value is not subject to MAS' approval under the Bill.  At the same time, the list of widely accepted SVF will be published in the Government Gazette and on the MAS website.  MAS will also help SVF users make more informed decisions through consumer education initiatives, such as publications under the MoneySENSE financial education programme.  In addition, MAS intends to issue guidelines to encourage the adoption of sound practices in the SVF market.
18   Sir, I will now go through the main provisions of the Bill, starting with those that relate to payment systems, followed by those that pertain to SVF.


Information-gathering Powers over All Payment Systems

19   Currently, MAS' payment system oversight powers extend only to financial institutions.  One of the key provisions in the Bill gives MAS the discretionary power to gather information from all relevant players in any payment system in Singapore, including the operators and settlement institutions.  MAS will only exercise this power selectively and will not be collecting information on all payment systems.  The information obtained will be used to monitor trends and developments in the payment industry, and fine-tune MAS' oversight policy for payment systems.

Designation of Payment Systems

20   I mentioned earlier that there is a broad spectrum of payment systems in Singapore, each with unique functions and characteristics.  MAS will identify and designate payment systems that are considered important for financial stability or for public confidence.  Operators and settlement institutions of designated payment systems will be subject to MAS regulation, in addition to information-gathering requirements. 

Regulatory Powers

21   The type and intensity of regulatory powers used, including the need to regulate entry, will vary according to the scale and risk of each payment system.  In regulating entry to a designated payment system, MAS will consult the affected parties and take into account the interests of all stakeholders.  Where competition issues are involved, MAS will consult and work closely with the Competition Commission of Singapore.

Supervisory Power

22   The Bill also gives MAS supervisory powers over the players in designated payment systems, including the payment system operators, settlement institutions, and market participants.  MAS will be able to inspect the operations of designated payment systems and issue directions where necessary to the operator and other market participants.

MAS' Approval for the Appointment of CEO, Directors and Significant Shareholders

23   The Bill requires the operator of a designated payment system to obtain MAS' approval for the appointment of its CEO and directors, and for persons and entities seeking to become significant shareholders, as they are in a position to influence the management of the operator.

Notification Requirements for Designated Payment Systems

24   Operators and settlement institutions of designated payment systems are required to inform MAS of pertinent matters or events that could affect the safety and efficiency of the system.  Timely notification of such occurrences allows MAS to detect any signs of potential disruptions and to take appropriate preemptive or mitigating measures. 

25   The Bill also requires an operator to notify MAS if it carries on or acquires substantial shareholding in any business other than the core business of operating a payment system, since non-core businesses could present risks that may spread to the operations of the designated payment system. 

Emergency Powers

26   Even though MAS will be supervising designated payment systems closely, disruptions and failures within a system could still occur.  An emergency situation could arise where a designated payment system is prevented from carrying out its functions, or is doing so in a manner detrimental to the interests of the participants.  In such a situation, MAS will have powers under the Bill to take expedient actions.  MAS will be able to direct the operator or settlement institution of a designated payment system to take necessary actions to maintain or restore the safe and efficient operation of the system.

Information-gathering Powers in Relation to Stored Value Facilities

27   I will now move on to the provisions in the Bill that relate to SVF.  With the liberalisation of the SVF market, the scope of MAS' oversight powers will be expanded accordingly.  The Bill provides MAS with discretionary information-gathering powers over holders of stored value.  This will apply to any SVF, whether single-purpose or multi-purpose.  As is the case for payment systems, MAS will only exercise this power selectively and will not be collecting information on all SVF.  The information gathered will be used by MAS to evaluate and fine-tune the oversight framework for SVF as the market evolves.

MAS' Approval for Widely Accepted Stored Value Facilities

28   As I stated earlier, the new regulatory regime for SVF makes a distinction between those SVF schemes where holders of stored value require MAS' approval and the rest which can operate without approval.  The Bill specifies a threshold to provide a general distinction between these two groups.  The threshold of stored value holdings will be set at S$30 million. 

29   The $30 million threshold balances MAS' prudential concerns and the need to provide consumers some protection on the one hand, with the need to allow for a vibrant and competitive market on the other.   It encourages innovation involving smaller-scale SVF.  Where the stored value of a SVF exceeds $30 million, the Bill provides that 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 of that SVF.  The $30 million threshold would mean that the existing nation-wide multi-purpose SVFs in operation in Singapore, namely the NETS CashCard and ez-link card would remain under MAS' regulation.  Banks would continue to be fully liable for the stored value for these SVFs.  The Bill provides that the threshold may be varied by MAS to cater to future developments in the SVF market.

Obligation on Non-widely Accepted Stored Value Facilities

30   With the liberalisation of the SVF market, consumers would have to be aware of and take responsibility for the risks relating to the SVF that they have purchased or are intending to purchase.  To enable consumers to discern the risks relating to different SVF, the Bill allows MAS to impose disclosure requirements.  Specifically, MAS will be requiring the market players involved in non-widely accepted SVF, that is, the smaller schemes, to provide written disclosure to potential users that the players are not subject to MAS' approval.


31   While the Bill is drafted broadly to cater to a wide range of payment systems and SVF, the provisions may not be applicable to every single payment system and SVF since their features and characteristics may vary with time and market developments.  Hence, the Bill includes a general exemption provision to enable MAS to exempt specific payment systems or SVF from any or all provisions in the Bill.


32   Sir, in conclusion, the Bill introduces a new regulatory framework for payment systems and SVF in Singapore. The framework provides a consistent basis for MAS to oversee payment systems and SVF in Singapore.  It also liberalises the SVF market to encourage competition and innovation, and to better meet consumers' needs.  This risk-based regulatory framework addresses the need for safety and efficiency in payment systems, and provides some protection for consumers using large-scale SVF, while avoiding unnecessary or excessive regulation of market players.     

33   Sir, I beg to move.