The amendments will bring the following activities within the scope of regulation under the Payment Services Act:

• provision of custodial services for digital payment tokens;
• facilitation of the transmission of digital payment tokens between accounts and facilitation of the exchange of digital payment tokens, even where the service provider does not come into possession of the moneys or tokens; and
• facilitation of cross-border money transfer between different countries, even where moneys are not accepted or received in Singapore.

The amendments will empower MAS to impose requirements relating to anti-money laundering and countering the financing of terrorism, user protection and financial stability on digital payment token service providers.

Under transitional arrangements, entities currently conducting activities under the Act’s expanded scope must notify MAS within 30 days, and submit a licence application within six months from 4 April 2024, if they wish to continue the activities on a temporary basis while MAS reviews their licence applications.

The licence application must be accompanied by an attestation report of the entity’s business activities and compliance with anti-money laundering and countering the financing of terrorism requirements, duly completed by a qualified external auditor, within nine months from 4 April 2024.

Menon talked about a number of key areas including Singapore's strategy to develop a digital asset ecosystem. He said MAS is taking a four-pronged approach to building the digital asset ecosystem:

• first, explore the potential of distributed ledger technology in promising use cases;
• second, support the tokenisation of financial and real economy assets;
• third, enable digital currency connectivity; and
• fourth, anchor players with strong value propositions and risk management.

He also discussed the five areas of risk in digital assets that MAS’ regulatory approach is focused on:

• first, combat money laundering and terrorist financing risks;
• second, manage technology and cyber related risks;
• third, safeguard against harm to retail investors;
• fourth, uphold the promise of stability in stablecoins; and
• fifth, mitigate potential financial stability risks.

This isn't an isolated or new effort by the MAS. The Payment Services Act 2019 (PSA) was previously introduced by the MAS in January 2020. The PSA covered both new and traditional payment activities. Building on this, the Paper seeks to expand the PSA and the MAS's regulatory scope to include virtual asset services. One aspect will be harmonising powers; another additional aspect would include expanding activities related to digital token (DT) service providers.

The MAS acknowledges the inherently higher money laundering and / or financing of terrorism risks of DT services owing to the frequency, anonymity, speed and cross-border nature of such transactions. The Paper, along with the PSA, would seek to provide greater security and transparency as digital transactions, digital banks and FinTech move more mainstream.

Additionally, the Financial Action Task Force (FATF) has introduced new anti-money laundering and combating the financing of terrorism standards on virtual assets service providers (VASPs) last year. Jurisdictions where a VASP is created must regulate and supervise it, notwithstanding that the VASP may also be subject to regulations in other jurisdiction where its activities have touchpoints.

Singapore is committed to FATF standards. As such, the MAS's consultation paper proposes the scope of DT services to be widened to include services that ‘actively facilitate’ regulated activities. This is regardless of whether they have possession of the virtual asset. This would cover and be applicable to DT service providers operating both within and outside of Singapore.

Southeast Asia is a booming financial hub with new FinTech models constantly emerging. Virtual asset trading activity is constantly occurring in the region, and consequently, the regulatory environment is seeking to achieve greater certainty. The MAS' proposal would have an impact on financial institutions and FinTech entities regionally headquartered in Singapore seeking to expand within the region. Examples include competitors and DT service providers such as GrabPay and Go-Pay, as they seek to expand out of Singapore and Indonesia respectively. Compliance with digital transaction licencing requirements will be key, and will likely receive significant attention from those in the financial services industry.

The consultation closes on 20 August 2020.