Speech by Mr. Louis Ng Kok Kwang, MP for Nee Soon GRC at the Second Reading of the Payment Services Bill [Bill no. 48/2018]
Sir, I stand in support of this Bill, which reflects the delicate balance that has to be struck between the government’s roles of regulating risks and promoting innovation in the payments industry.
This balance is struck by the calibrated approach taken in applying safeguards relating to standards of consumer protection, anti-money laundering controls, and cybersecurity.
Beyond this, the Bill also recognises that regulation may be beneficial, even necessary, for competition and innovation.
In the 2016 Singapore Payments Roadmap report commissioned by MAS, the limited adoption of electronic payments was attributed to decentralised governance and lack of coordination of infrastructure.
This suggests that the payment systems market when left to its own devices does not lead to the best outcomes for consumers.
The Bill addresses this by providing MAS with regulatory powers relating to interoperability, allowing the regulator to play the role of innovator as well.
That said, I would like to seek some clarifications and make proposals for the businesses that raise funds through Initial Coin Offers (ICOs).
Enforcement of extra-territorial provisions
Firstly, MAS has indicated that the Bill will regulate any entity whether local or foreign as long as it provides payment services and has a clear nexus to Singapore.
Section 5(1) prohibits any person from providing any type of payment service in Singapore without a license if a license is required.
Many of the definitions of the various payment services refer to the provision of services to persons in Singapore, but the provider himself does not have to be in Singapore to be required to obtain a licence.
Certainly the provision of payment services that affect individuals in Singapore will raise similar risks whether or not the provider is physically located in Singapore or overseas.
Can the Minister clarify how it intends to enforce these provisions against non-Singapore businesses that do not operate in Singapore?
Further, these foreign businesses may already be regulated in their home jurisdictions. For instance, payment services based in Hong Kong would be subject to the Payment Systems and Stored Value Facilities Ordinance 2015, while those based in the United Kingdom are regulated by the Payment Services Regulations 2017.
How would the local regime interact with those of other countries? For instance, would designations under foreign regimes be recognised in Singapore?
Competition and innovation regulation
Next, in the Singapore Payments Roadmap report mentioned earlier, KPMG noted that the lack of interoperability between electronic payment systems was a cause of limited adoption and high costs of electronic payments. Establishing interoperability was a key topic discussed by the Payments Council at its inaugural meeting in August 2017.
The Bill addresses this by providing MAS the powers relating to access regimes, common platforms, and common standards.
Section 25 and 26 give MAS broad powers to direct that payment service providers ensure interoperability between payment accounts and payment system, and between payment systems. Division 4 of Part 3 of the Bill allows MAS to impose access regimes to payment systems.
Alongside MAS’s regulatory powers, the Payments Council plays an advisory function and is tasked with promoting the interoperability of systems. It set up an industry taskforce in August 2017, which developed the Singapore Quick Response Code to consolidate multiple payment schemes.
Another agency which is concerned with innovation and competition in the payments industry is the Competition Commission of Singapore. The CCS has undertaken inquiries into alleged infringements by payment systems, clearing the NETS Affinity Programme of abuse of dominant position in 2007 and clearing VISA’s Multilateral Interchange Fee system of anti-competitive behaviour.
Further, CCS had commissioned the New Zealand consultancy company Castalia to study the competitiveness of card payment systems in Singapore.
Can the Minister clarify how MAS will work with the Payments Council and the CCS in exercising its powers relating to interoperability?
Further, will the Minister look into establishing a regulatory body to exercise specific oversight over competition and innovation for payment systems?
The Payment Systems Regulator in the UK provides a model for this. While there is also a general competition regulatory body, the Competition and Markets Authority, the PSR has a more narrow focus on payment systems.
The co-existence of the PSR alongside the CMA demonstrates that payment systems give rise to sufficiently unique competition concerns arising from the network effect to require a separate regulatory body.
Provision of information to authority
Lastly, Section 41 provides that MAS may require participants, operators, and settlement institutions to provide information relating to a payment system.
This includes information relating to operations, pricing, participation, and any other information that MAS may require for the purposes of the Act.
Can the Minister clarify whether this would include information of payment systems users? If so, are there any limits on the information that MAS can require? For instance, would MAS be able to obtain aggregated user data or individually-identifiable information?
Issuance of virtual money
I also like to raise concerns about the ascendancy of ICOs which accompanied the rise of blockchain and cryptocurrency. ICO is a method of fundraising used by businesses to build blockchain-centric projects.
Based on a report by ICObench, an authoritative rating body, Singapore has the second highest number of ICOs on ICObench’s platform, with 524 ICOs launched and USD 2.1 billion raised. Both statistics indicate that Singapore is favoured by businesses seeking to raise funds through ICOs.
While platforms that issue digital tokens will be regulated under the proposed regime, those within the industry have expressed concerns to me that there should be greater regulatory oversight over businesses that operate on those platforms and raise funds by offering ICOs. According to a report by ICO advisory firm Statis Group 80% ICOs in 2017 were scams.
As such, I urge MAS to improve its regulatory coverage to build a more robust financial system for the growth of the ICO market. Will the Ministry consider the following proposals in future reviews of the payment services regime?
First, I propose that all businesses that conduct an ICO must register themselves with MAS. MAS should maintain a central registry of key persons involved in an ICO.
Presently there is no way for investors to conduct background checks on founders of businesses with an ICO campaign. Such a central registry will help investors easily perform due diligence on their investments.
Second, MAS could conduct public campaigns to raise awareness about ICOs, its potential windfalls, and its pitfalls. This will improve retail investors’ ability to differentiate good projects from scams.
Finally, our legislation presently does not cover acts of wrongdoing in the conduct of a business that offers an ICO. For example, these businesses are not obliged to provide full disclosure in deployment of funds raised. This entails a risk of potential fraud and funds misuse. Would the Minister consider legislating to enforce penalties on fraud and funds abuse?
Sir, notwithstanding my clarifications, I stand in support of this Bill.