Digital Payment Token Services Licence Guide in Singapore

Financial technology (“fintech”) has opened up many opportunities for financial entrepreneurship. In Singapore, more firms are looking to provide services for the buying or selling of digital payment tokens (e.g. cryptocurrency), or to provide a platform for the exchanging of such digital payment tokens.

As a result, to accommodate and regulate such payment services transactions, the Monetary Authority of Singapore (MAS) has enacted the Payment Services Act (PSA), which requires any business that intends to provide digital payment token services to first acquire the necessary licences.

If you are a business owner and are considering implementing digital payment token services, this article is for you. We will cover:

• What is a digital payment token?
• What licence do you need to provide digital payment token services in Singapore?
• How can you apply for a licence to provide digital payment token services?
• What are some regulations and guidelines that you should be aware of when you have obtained your licence?

What is a Digital Payment Token?

A digital payment token is any cryptographically-secured digital representation of value that is used or intended to be used as a medium of exchange, i.e. cryptocurrency. Examples of digital payment tokens are Bitcoin, Ether, Litecoin and Monero.

As mentioned above, digital payment token services refer to services that aid in the buying or selling of digital payment tokens. Such services may also act as a platform to facilitate digital exchanges.

What Licence Do You Need to Provide Digital Payment Token Services in Singapore?     

The first thing you should do, when establishing your business as a digital payment token service provider in Singapore, is to check if the services you intend to provide are regulated under the PSA.

If the services you plan to offer are not one of the 7 payment services listed under the PSA, then you will not need to obtain any of the licences below. However, if you will be providing digital payment token services, which do fall under the MAS’ list, then you need to obtain one of the following two main classes of licences:

1. Standard payment institution licence
2. Major payment institution licence

Standard payment institution licence

If your business will be conducting digital payment token services below specified thresholds, you should apply for a standard payment institution licence.

In this case, the specified threshold refers to accepting, processing, or executing digital payment token transactions of a monthly average of up to S$3 million in a calendar year.

There is also a base capital requirement of S$100,000.

Major payment institution licence

If you intend for your business to provide digital payment token services without any limits on transaction volume or float, you should apply for a major payment institution licence.

This means that you will need a major payment institution licence if the average total value of all digital payment token transactions by your company exceeds a monthly threshold of S$3 million for your digital payment token service over a calendar year.

There is also a base capital requirement of S$250,000.

How Can You Apply for a Licence to Provide Digital Payment Services?

Both the standard payment institution licence and major payment institution licence are collectively known as payment services licences, and entail several application requirements. Considering that the PSA is meant to help safeguard payment services transactions, the process to apply for a licence to provide digital payment services can be a lengthy and onerous one.

Basic requirements when applying for a payment services licence

When applying for either licence, it is important to note that the applicant must:

• Be a company (incorporated in Singapore or overseas);
• If you have not incorporated your company, you may start by logging into the BizFile+ website to do so, or by engaging the services of a registered filing agent. You will need to choose a company name and address, and have a company constitution prepared. To learn more about registering a company in Singapore, you may refer to our other article.
• Alternatively, if you have an established foreign company, there are several routes you may consider to help you set up your foreign company in Singapore. These routes include:
  • Setting up a Singapore branch office;
  • Setting up a Singapore subsidiary;
  • Setting up a representative office; or
  • Redomiciliation.
• Have a permanent place of business in Singapore or a registered office in Singapore; and
• Have at least 1 executive director who is a Singapore citizen or Permanent Resident; or
• Have at least 1 non-executive director who is a Singapore Citizen or Singapore Permanent Resident and at least 1 executive director who is a Singapore Employment Pass Holder.

The MAS is particularly cautious when it comes to assessing a company’s application for a payment service licence, and may consider the following factors:

• Fitness and propriety of the controllers and directors
• Governance structure
• Qualifications and experience, particularly in operating a payment services business and compliance with regulatory requirements
• Financial condition and track record; and
• Whether the public interest will be served by granting the applicant a licence.

After you have determined that you meet the admission criteria for the appropriate licence, you may apply for a licence by completing and submitting Form 1.

What are Some Regulations and Guidelines that You Should be Aware of When You have Obtained Your Digital Payment Token Services Licence?

Upon being granted a licence, your company will have to satisfy a list of ongoing requirements to retain the licence. These include:

Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) requirements

Your company must comply with the AML/CFT requirements set out by the MAS, in the Notices on Prevention of Money Laundering and Countering the Financing of Terrorism (PSN01 and/or PSN02) and Notice on Reporting of Suspicious Activities & Incidents of Fraud (PSN03).

Periodic returns

In accordance with the requirements set out in the Notice on Submission of Regulatory Returns (PSN04), your company must submit periodic returns pertaining to its payment service activities.

Cyber hygiene

Proper safeguards to protect customer information must be implemented based on the requirements set out in the Notice on Cyber Hygiene (PSN06).

Business conduct

With regard to the PS Act and the Notice on Conduct (PSN07), your company must comply with business conduct requirements i.e. the safeguarding of customers’ monies, issuance of receipts and the display of exchange rates and fees.

Disclosures and communications

In relation to the Notice on Disclosures and Communications (PSN08), your company is also obligated to make accurate representations on the scope of its licence, and ensure that customers receive timely updates regarding any material changes to existing disclosures.

Annual audit requirements 

Your company must appoint an auditor to carry out an audit of its accounts and transactions on an annual basis. The audit report should be submitted to the MAS in Form 4.

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If you’ve decided to provide digital payment token services, it is imperative that you apply for the necessary licence beforehand, and commence digital payment operations only after you have acquired one. Failure to do so may result in the suspension of your business.

To increase your chances of successfully obtaining a digital payment token licence in Singapore, consider working with a fintech lawyer.

A good lawyer who understands both the MAS requirements, and the nature of digital payment token businesses, will be able to guide you through the application process and ensure you comply with the relevant regulatory frameworks.