Advomi FinTech Legal Navigator
Singapore is a wonderful place for FinTech with hundreds of companies choosing the country as their headquarters for technology and innovation. The rapidly expanding industry comes with a contemporary regulatory framework with the ambitious goal to streamline the development, operating and licensing of all payment service aspects. This simple guide has been designed by our team to help you navigate your way through the Singapore legislation and understand the fundamental regulations that govern the FinTech industry.
Here is a short table of the contents of the Navigator in case you want to skip directly to what matters to you.
A Quick Overview
In this section we will introduce the most important legislative acts in Singapore that govern various aspects of the FinTech industry in the country.
1. The Payment Service Act (PSA)
A major point of the development of the Singapore FinTech regulations was the adoption of the Payment Services Act. The Act was adopted in 2019 but came into force in January, 2020. It provided a legal framework which:
- Defines the concept and scope of payment services;
- Specifies different types of licenses for FinTech companies;
- Determines criteria for FinTech companies and their owners.
2. The Securities and Futures Act (SFA)
The Securities and Futures Act governs the regulation of activities and institutions in the securities and derivatives industry, including leveraged foreign exchange trading of financial benchmarks and of clearing facilities. It is significant for its implication in token economics (Tokenomics).
3. AML and CFT regulations
The rules for prevention of money laundering (AML) and countering the financing of terrorism (CFT) are another important aspect of the FinTech regulations in Singapore. They are mostly provided by the PSA but other legislative acts may also contain some industry-specific regulations.
4. The Monetary Authority of Singapore (MAS)
The Monetary Authority of Singapore (MAS) is Singapore’s central bank and integrated financial regulator. MAS also works with the financial industry to develop Singapore as a dynamic international financial centre.
MAS is the institution which grants licenses to new payment service providers and in general controls the development of the FinTech industry in Singapore. It often issues valuable guidelines for companies operating in the area. Some of them will be referenced in our Navigator.
Payment Service in Singapore
The Monetary Authority of Singapore regulates seven different types of services. If you want to operate a business that provides any of these services you will need a license. More on the licenses later.
1. Account Issuance
This service includes issuing any kind of payment account or providing options for operating such accounts. Popular examples of account issuance services are the e-wallet and non-bank issued credit cards.
2. Domestic Money Transfers
This is self evident – domestic money transfers in Singapore. This service includes payment gateway services and payment kiosk services.
3. Cross-border Money Transfers
This refers to inbound or outbound remittance services in Singapore.
4. Merchant Acquisition
This service includes the processing of payment transactions from the merchant and payment receipts on behalf of the merchant. Usually the service includes providing a point-of-sale terminal or online payment gateway.
5. E-money Issuance
E-money issuance covers the issuing of any type of e-money that allows users to pay merchants or transfer value to another individual.
6. Digital Payment Token Services
This service includes buying or selling digital payment tokens or providing a platform that allows users to issue or trade with digital tokens. Trading cryptocurrencies is also included in the scope of this service.
This is the most straightforward one. It includes buying or selling foreign currency notes and that’s it.
The PSA provides some exceptions in terms of services which are not considered payment services. These are mostly services by technical service providers that do not accept money, and services in respect of limited purpose e-money.
Payment Service Licenses
A major part of the Payment Services Act is devoted to the licensing of payment service providers.
For any combination of the above mentioned 7 services, the service provider (licensee) must have the respective license. The only exception is the money-changing services that can be performed with a simple Money Changing License but this license will not be subject to the current Navigator.
Types of licenses
For the other services a payment services provider must acquire:
- A Standard Payment Institution License or
- A Major Payment Institution License
The standard license is enough for performing payment services below two specified thresholds:
- Average monthly transactions over a calendar year not exceeding S$3 million;
- Average daily E-money float over a calendar year not exceeding S$5 million.
Once any of these thresholds is reached the payment service provider must obtain the license for a major payment institution.
Applicants for payment institution license are required to pay a non-refundable license. The fee depends on the type of license applied for and the payment services which are to be included in the license.
A simple Money changing License costs S$500. The Standard Payment Institution license costs S$1,000 or a higher sum depending on the payment services which are to be included in the license. The maximum application fee for this type of license is S$5500. Applicants for a Major Payment Institution License must respectively pay a fee ranging from S$1500 to S$8000.
The licensee must also pay an annual license fee and the applicable fees depend on the payment services that they are licensed to conduct.
Losing the license
A licensee can lose their respective payment institution license if they:
- Do not commence business within 6 months of the grant of license;
- Cease to provide payment service for 6 months;
- Do not conduct any payment transaction for 6 months;
- No longer cover the license criteria provided for in the PS Act.
Digital Token Offerings in Singapore
In recent years the number of companies dealing with blockchain in Singapore has increased immensely. Thus, initial coin offerings (ICOs) have become more and more popular as means of access to capital. The regulatory aspects of tokenomics are an important part of the FinTech regulation in Singapore.
Types of tokens
Depending on the nature of a token it can either be a “security” or a “utility” token. Security tokens constitute rights of ownership in a company, indebtedness evidences or derivative products. Utility tokes are mostly app tokens that allow token holders to access certain features of applications built on the blockchain. Security tokens are regulated by MAS and entities that issue or trade with these tokens must obtain a license.
1. Security Tokens
Under the latest guidelines provided by the Monetary Authority of Singapore which are consistent with previous instructions and clarifications, “security” tokens are digital tokens that constitute capital market products. They are further defined in the Securities and Futures Act (SFA) which states that capital market products include:
- Shares when in general they confer or represent ownership, rights, and liabilities in a corporation;
- Debentures that constitute evidence of indebtedness of the issuer;
- Tokens that represent an ownership interest in the trust property of a business trust;
- Tokens that represent securities-based derivatives contracts involving any of the assets mentioned above;
- Tokens that represent rights of interest in collective investment schemes (CIS).
The issuing and offering tokens that constitute capital market products are considered Security Token Offering (STO) and holding such offering must be compliant with the SFA.
2. Utility Tokens
A token can be safely considered a utility token when it is not a security one. Utility tokens in general support services or functionalities on blockchain-based platforms. These types of tokens are not suitable for investment in companies. They give different rights to the owners of the tokens like participation in networks and voting rights.
Regulation of Security Token Offerings (STOs)
Entities who make offers of security tokens must comply with the requirements of the SFA. The most important rule is that the ICO (STO) must be accompanied by a prospectus that must be registered with MAS. There are some exceptions to this rule where a prospectus is not required:
- Small (personal) offers that do not exceed S$5 million within any 12-month period;
- Private placement offers made to no more than 50 persons within any 12-month period;
- Offers made to only institutional or accredited investors*
Although a prospectus is not necessary for these types of ICOs they are still subject to some regulations including advertising restrictions.
*An accredited investor in Singapore is an individual or an entity that covers the criteria below.
Individuals – accredited investors
An individual that qualifies as an accredited investor in Singapore:
- Has net personal assets exceeding S$2 million or
- Has financial assets exceeding S$1 million or
- Has an income in the preceding 12 months not less than $300,000.
Corporations – accredited investors
In order for a corporation to qualify as an accredited investor in Singapore it must have net assets exceeding S$ 10 million in value.
Regulation of Platforms and Marketplaces for ICOs
In general, there are two types of platforms which facilitate transactions with tokens in Singapore:
- Primary platforms and
- Trading platforms
Primary platforms allow users to act as offerors of digital tokens by designing, issuing and offering these tokens. Тrading platforms merely allow users to trade already existing digital tokens.
Entities who establish and operate primary platforms that allow users to issue and offer security tokens may be required to hold a capital market service license under the Payment Service Act (PSA). Operators of trading platforms, on the other hand, may, in certain circumstances be required to obtain approval for their activities from MAS.
Another important consideration is that entities providing any service of dealing in digital payment tokens or any service of facilitating the exchange of digital payment tokens must be licensed under the PSA for AML/CFT purposes only and will be required to put in place policies, procedures and controls to address its ML/TF risks.
Business Structuring For the FinTech Industry
When planning your business structuring for a company in the FinTech industry in Singapore you should keep in mind the requirements for licensees under the PSA and also for their controllers.
In order to apply for a Standard Payment Institution License your company must cover the following criteria:
- A company registered in Singapore or a corporation registered outside Singapore with a permanent place of business in the country;
- An executive director who is a Singapore citizen or a Permanent resident of Singapore (or 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 satisfaction of certain prescribed financial and operational criteria;
- Minimum base capital of S$100,000
Each license application is reviewed by the Monetary Authority of Singapore which takes into account factors like financial condition and track record of the applicant, qualification and experience, ability to comply with obligations under the PSA, etc.
As noted above foreign companies can hold a licence under the PSA. Both local and foreign companies are treated similarly. If you opt to perform payment services through a foreign company you should ensure that the company has an executive director with Singapore residency and also a registered office in Singapore. This must be an actual office and not just a virtual address. It must be your main point of operations.
It may be wise to consider registering a new entity in Singapore to obtain a license for a payment processor. Incorporating a local company is not a complex procedure and it may later provide some benefits to its owners and directors such as residence permits which are otherwise not easy to obtain in Singapore. Another advantage to owning a company is the access to state funds. Grants for the FinTech industry are frequently released by the Singapore government and available for local companies.
Regulations for Controllers and Directors of Payment Service Providers in Singapore
Apart from the license requirements the PSA also sets a certain set of criteria which must be met by the owners (controllers) and directors (officers) of entities holding a payment institution license.
1. 20% Controllers of Licensees
Some restrictions have been provided for by the PSA for individuals who intend to control at least 20% of the shares in a licensee. The act refers to them as “controllers” and a 20% controller is considered a person that alone or together with their associates:
- Has an interest in at least 20% of the shares of the licensee or
- Is in a position to control at least 20% of the votes in the company
In order to become a 20% controller, the said individual must first file an application with the Monetary Authority of Singapore (MAS). MAS is the institution that in general controls all aspects of the payment service market in Singapore.
The Authority will approve the application if it is satisfied that the new 20% controller is a “fit and proper” person under the guidelines of the MAS. These guidelines will be referenced at the end of the Navigator. The rules are a bit complex but overall the controller is expected to be competent, honest, to have integrity and to be of sound financial standing.
2. Executive Officers of Licensees
The PSA also provides regulations for the executive officers and directors of entities holding a payment service license in Singapore. Before appointing a chief executive officer or a director, directly responsible for the whole or any part of the licensee’s business in Singapore, the entity must first apply for and obtain the approval of the MAS.
There are several reasons on which the Authority may refuse an application:
- The individual has been convicted of an offense involving fraud and dishonesty in Singapore or elsewhere;
- The individual is an undischarged bankrupt, whether in Singapore or elsewhere;
- There has been an execution against the individual for unsatisfied debts or the individual has entered into a compromise scheme with their creditors;
- The individual has been a director of a financial institution that has been wound up by a court the license of which has been withdrawn or revoked in Singapore or elsewhere.
Once approval has been granted the approved person may be re-appointed as an executive officer again immediately upon the expiry of their appointment term without the need to once again obtain approval.
The MAS may also issue notices for the removal of appointed chief executive officers and directors of licensees if the person no longer meets the criteria that were set for this position in the first place.
The anti-money laundering and counter financing of terrorism rules are another important aspect of the FinTech regulation in Singapore. We will provide a brief overview of the most important part of the Navigator.
MAS has provided three general principles which should serve as a guide for all payment service providers when developing their AML/CTF measures:
- Exercising due diligence when dealing with customers;
- Operating a business in conformity with high ethical standards and not participating in transactions that may facilitate money laundering or terrorism financing;
- Assisting and cooperating with the relevant law enforcement authorities in Singapore.
Risk Assessment and Mitigation
A payment service provider should identify and understand the risks related to money laundering and financing terrorism by taking into account its customers, their countries of jurisdiction, the products, services and transactions as well as the delivery channles of these clients.
Having considered and documented the associated risks the service provider must develop AML/CTF policies and measures and monitor their implementation.
A new risk assessment should be performed every time the business launches a new product, practice or implements a new operational technology.
Customer Due Diligence (CDD)
Token payment providers should not open or maintain anonymous accounts or accounts under fictitious names. Therefore prior to establishing business relations with a customer the provider must:
- Identify the customer or their beneficial owners.
- Verify the identity of the customer or their beneficial owners.
- Obtain information on the nature of business off the customer.Perform an ongoing monitoring.
MAS has explained two types of CDD depending on the assessed risk regarding the customer and their business activity – simplified and enhanced due diligence. In most cases the simplified CDD will be enough but for transactions and customers associated with higher ML/TF risks additional measures should be taken.
Foreign Currency exchange Transactions
Special measures should be taken by FinTech companies when a foreign exchange (FX) transaction equals or exceeds S$20,000. In addition to performing CDD measures, the payment service provider shall, to the extent possible, inquire into the background and purpose of the transaction and document its findings with a view to making this information available to the relevant authorities should the need arise.
Cash Payout Restrictions
Payment service providers are not allowed to make payments of cash exceeding the amount of S$20,000. Where the provider suspects that two or more payment transactions or FX transactions are related to the deliberate restructuring of a single transaction these transactions shall be treated as a single transaction.
Suspicious Transfer Reporting
All payment service providers are expected to promptly submit reports on suspicious transactions with MAS. A suspicious transaction report may be filed online via the the STRO Online Notices and Reporting platform.
Why You Should Choose Singapore?
There are a number of reasons to consider Singapore as a headquarters for your FinTech business. Here we will provide our list of the most important reasons why you should consider moving your business or establishing a branch in the country.
Singapore has been developing for years as a financial centre of international repute with over 200 banks registered locally. There is also a diverse community of entrepreneurs and investors in the Singapore FinTech industry which has only been expanding in recent years. These factors combined create a perfect environment for a startups as well as for established companies.
The State Policy
The FinTech industry is currently very much favored by the Singapore government which results in beneficial conditions for companies and frequent state investments. The country does indeed have perhaps the most contemporary regulation of financial and payment services which sets clear rules without unnecessary restrictions for new players. The development in technology and the dynamics of the industry are always taken into account when designing and modernizing the FinTech regulatory framework.
Open Market Access
It is fairly easy to access the Singapore payment service access. Perhaps one of the bigger benefits here is that foreign companies are also eligible to obtain a payment institution license. The criteria set for performing basic payment services are not impossibly high. Many exceptions have also been provided for small operations which helps starting companies to easily kick start their businesses in the country.
Another important aspect of the Singapore finTech industry are the taxes. Taxes are one of the main considerations of businesses in any area to move to the country so you should also consider them. Your company pays less than 9% for the first S$300,000 you make in annual profits, followed by a flat rate of 17% thereafter. Singapore companies do not pay capital gains or dividend taxes. These are among the most favorable conditions for business you will find anywhere in the world.
At the end of our Navigator we put a list of useful resources that can help you gain deeper knowledge on the FinTech Regulations in Singapore. In Advomi we have a team of expert lawyers in the FinTech industry in Singapore. Feel free to reach out if you need legal advice.