Introduction

As noted in MAS’ Part 1 of the Responses to Feedback Received on Proposed Regulatory Measures for DPT Services (published on 3 July 2023), the Monetary Authority of Singapore (“MAS”) will be amending the Payment Services Regulations 2019 (“PS Regs”) to implement customer assets segregation and custody requirements for digital payment token service providers (“DPTSPs”).

In this connection, the MAS published the Consultation Paper on its Proposed Amendments to the PS Regs (“Consultation Paper”) on 3 July 2023.

The PS Regs apply to DPTSPs licensed (“Licensed DPTSPs”) under the Payment Services Act 2019 (“PS Act”) and DPTSPs who are exempt (“Exempt DPTSPs”) under the PS Act. Exempt DPTSPs refer to banks, merchant banks, finance companies, and persons licensed to carry on the business of issuing credit/charge cards in Singapore. Separately, while the PS Regs do not apply to DPTSPs operating under a transitional exemption under the PS Act, the MAS expects these DPTSPs to meet the segregation and custody requirements as well.

Proposed Amendments to PS Regs relating to Customers’ Moneys

Currently, the PS Act provides for the safeguarding of money received from customers, for certain entities licensed under the PS Act.

The MAS proposes to introduce new regulations in the PS Regs, so as to extend the application of the existing safeguarding requirements for customers’ moneys to Licensed DPTSPs.

Proposed Amendments to PS Regs relating to Customers’ Assets

New Regulation 16C – for Licensed DPTSPs

The MAS proposes to introduce a new regulation in the PS Regs to set out customer assets segregation and custody requirements for Licensed DPTSPs. Key aspects of the new regulation are follows:

Handling of customers’ assets

The Licensed DPTSP must:

• deposit the customer’s assets in a custody account held on trust for the customer and the customer’s assets cannot be used for the payment of the debts of the Licensed DPTSP;
• treat and deal with all assets received from a customer as belonging to the customer and deposit all customers’ assets in the custody account; and
• apply the customer’s assets solely for the purposes agreed to by the customer.

Commingling of customers’ assets

The Licensed DPTSP must not commingle customers’ assets with any other assets, except that the assets belonging to one customer may be commingled with the assets belonging to other customers.

Transfer of customers’ assets

The Licensed DPTSP must not transfer any right, interest, benefit or title in the customer’s assets, except where the transfer is in accordance with the customer’s written instructions obtained prior to each transfer or is authorised by law.

Disclosures

The Licensed DPTSP must disclose to its customer:

• that the customer’s assets will be held on behalf of the customer in a custody account with a safeguarding institution;
• whether or not the customer’s assets are commingled with the assets of other customers and, if so, the risks;
• the consequences for the customer in respect of the customer’s assets if the safeguarding institution becomes insolvent; and
• the terms and conditions that would apply to the safeguarding of the customer’s assets.

Record-keeping

The Licensed DPTSP must record and maintain a separate book entry for each customer in relation to the customer’s assets in accordance with the details required.

Reconciliation

The Licensed DPTSP must conduct daily reconciliation of customers’ assets.

Adequate systems, processes, controls, human resources, and governance arrangements

The Licensed DPTSP must maintain adequate systems, processes, controls etc. to ensure the integrity and security of the transmission and storage of customers’ assets; and to reduce the risk of loss of customers’ assets due to fraud or negligence.

Operational independence

The Licensed DPTSP must ensure effective controls and segregation of duties to mitigate potential conflicts of interest from the safeguarding of customers’ assets.

Requirements relating to maintenance of custody account with other persons

The Licensed DPTSP may maintain the custody account itself. Where the Licensed DPTSP maintains the custody account with a safeguarding institution other than itself, the Licensed DPTSP must:

• assess and be satisfied of the suitability of the safeguarding institution before opening the custody account and, on an annual basis, keep records of the grounds on which it was satisfied;
• notify the safeguarding institution and obtain an acknowledgment that (i) all the customer’s assets in the custody account are held on trust by the Licensed DPTSP for the customer; (ii) the safeguarding institution must not claim any lien, right of retention or sale over any asset standing to the credit of the custody account (except where as agreed by customer); and (iii) the account is designated as a trust account, or a customer(s)’ account.

New Regulation 16D – for Exempt DPTSPs

The MAS also proposes to introduce a new regulation in the PS Regs to set out customer assets segregation and custody requirements for Exempt DPTSPs, analogous with the above section applicable to Licensed DPTSPs (with necessary modifications).

Implementation Approach for the Proposed Amendments

The MAS intends to effect the proposed amendments to the PS Regs by October 2023, and will also be publishing Guidelines setting out its further expectations on the segregation and custody requirements. DPTSPs should prepare to comply with the policy positions by October 2023.

Your Contact

If you have any questions about the above, please feel free to contact any of our lawyers listed:

Heng Jun Meng, Managing Director (junmeng.heng@entralaw.com)
Ho Xiu Fen, Counsel (xiufen.ho@entralaw.com)

This alert is for general information only and is not a substitute for legal advice.