Digital payment token (DPT) Service

According to PS Act

“digital payment token service” means any of the following services:

(a) any service of dealing in digital payment tokens (other than any such service that the Authority may prescribe);

(b) any service of facilitating the exchange of digital payment tokens (other than any such service that the Authority may prescribe);

Digital payment tokens ("DPTs"), commonly known as cryptocurrencies, are defined in the Payment Services Act 2019 as any digital representation of value that is expressed as a unit and is not denominated in any currency or pegged to any currency by its issuer. DPTs serve as a medium of exchange accepted by the public or a section of the public as payment for goods or services or for the discharge of a debt. They can be transferred, stored or traded electronically. A person providing services involving the buying and selling of DPTs, or providing a platform for the exchange of DPTs in Singapore is regulated under the Payment Services Act 2019 and is subject to risk mitigation measures relating to anti-money laundering / countering the financing of terrorism.

MAS has clarified that DPTs are not regulated in themselves and are not legal tender in Singapore. A DPT service provider is required to provide a risk warning to its customers in a format prescribed in the Notice on Disclosures and Communications (PSN08) that applies to licensees and exempt payment service providers.

Legislative changes to the Payment Services Act 2019 have been passed in Parliament to expand the scope of DPT services to include the transfer of DPTs, provision of custodian wallets for or on behalf of customers and brokering DPT transactions (without possession of money or DPTs by the DPT service provider). The changes have yet to come into force. For a summary of the these changes, please click here to read Rajah & Tann Singapore LLP update on "Amendments to Payment Services Act 2019 Tabled in Parliament to Enhance Regulation of DPT Service Providers and Address ML/TF Risks".

Dealing in digital payment tokens and facilitating the exchange of digital payment tokens are regulated in Singapore.

Dealing in digital payment tokens, which consist of the buying or selling of that digital payment token in exchange for any money or any other digital payment token (whether of the same or a different type), except for accepting or using any digital payment token as a means of payment for the provision of goods or services.

Facilitating the exchange of digital payment tokens, which consist of establishing or operating a digital payment token exchange, in a case where the person that establishes or operates that digital payment token exchange, for the purposes of an offer or invitation (made or to be made on that digital payment token exchange) to buy or sell any digital payment token in exchange for any money or any digital payment token (whether of the same or a different type), comes into possession of any money or any digital payment token, whether at the time that offer or invitation is made or otherwise.

Paragraph 3 of the First Schedule, Payment Services Act 2019

"The PSA now regulates entities offering any of the following DPT-related services as digital payment token service providers:

• Buying or selling DPTs;
• Establishing or operating a DPT exchange; and
• Participating in and offering financial services related to the offer and/or sale of a DPT by an issuer.
• Transfer or transmittal of DPTs from one DPT address to another
• Inducing (or attempting to induce) any person to buy or sell DPTs (without the DPT service provider actually accessing any money or DPTs)"

Source: Sygna

According to MAS (Guidelines)
last revised on 17 January 2022

2.1 DPT service providers should not portray the trading of DPTs in a manner that trivialises the high risks of trading in DPTs, and should not promote their DPT services in public areas in Singapore or through any other media directed at the general public in Singapore. This includes placing of any form of advertisements or promotional materials in public areas such as Singapore public transport, public transport venues, broadcast media or periodical publications³, third party websites, social media platforms⁴, public events or roadshows.

2.2 DPT service providers may promote their services on their own corporate website, mobile applications, or official social media accounts, but must not trivialise the risks of trading in DPTs in a manner that is inconsistent with or contradicts the risk disclosures under the PS Act.

2.3 DPT service providers should also not engage third parties, such as social media influencers or third-party websites, to promote their DPT services to the general public in Singapore. This includes joint promotional campaigns to solicit new customers.
⋮
3.1 Providing in-person access to DPT services in public areas through the use of automated teller machines (“ATMs”) is a form of promotion of DPT services to the public. Such convenient access may mislead the public to trade in DPTs on impulse, without considering the risks of trading in DPTs. DPT service providers should not provide physical ATMs in public areas in Singapore to facilitate public access to their DPT services.
⋮
4.1 Payment token derivatives (“PTDs”) are derivatives contracts that reference DPTs as underlying assets. These include contracts-for-differences and futures contracts. MAS does not regulate PTDs unless they are offered by an Approved Exchange under the Securities and Futures Act.

4.2 DPT service providers should not promote PTDs to the public as a convenient unregulated alternative to trading in DPTs. DPT service providers should not mislead the public that PTDs are less risky than DPTs.

The Payment Services Amendment Act (to be enacted) will expand the definition of DPT service to include the transfer of DPTs

"Transfer of DPTs: As bad actors could use entities that facilitate the transfer of DPTs to move or layer the proceeds of illicit assets by transferring value in the form of DPTs from one person to another, the proposed amendments expand the definition of “digital payment token service” to include:

• Any service of accepting DPTs from one DPT address or account, whether in Singapore or outside Singapore, as principal or agent, for the purposes of transferring, or arranging for the transfer of, the DPTs to another DPT address or account, whether in Singapore or outside Singapore; and

• Any service of arranging for the transmission of DPTs from one DPT address or account, whether in Singapore or outside Singapore, to another DPT address or account whether in Singapore or outside Singapore."

Source: Allen & Gledhill, last revised on 22 Jan 2020

Provision of custodian wallets for or on behalf of customers: As entities that offer standalone custodial services for DPTs are exposed to potential ML/TF risks, such entities could be used to safekeep illicit assets or assets for illicit actors (among others). The proposed amendments expand the definition of “digital payment token service” to include the service of safeguarding or administration of:

• A DPT where the service provider has control over the DPT; or

• A DPT instrument where the service provider has control over the DPT associated with the DPT instrument.

Source: Allen & Gledhill, last revised on 22 Jan 2020

"The changes propose to widen the existing scope of services involving digital payment tokens, domestic money transfer and cross-border money transfers, as well as to expand the powers of the MAS to impose additional licence conditions and user protection measures on certain digital payment token service providers."

"Under the amendments, the scope of regulated digital payment token services will be expanded to include:

• facilitating the transmission of digital payment tokens from one account to another;
• custodial services for digital payment tokens; and
• facilitating the exchanges of digital payment tokens where the service provider does not come into possession of the moneys or digital payment tokens involved."

"Subsequently, these changes will regulate blockchain-related businesses that already offer such services in the market, but are not subject to existing laws under the SFA or the PS Act."

"Both the SFA and the PS Act also contain various AML/CFT regulations with which companies need to comply. Such operators may be required to set up cybersecurity systems to reduce technological and cyber-risks."

Source: Chambers and Partners, last revised on 8 May 2022

MAS intends to regulate it in future.

"Brokering of DPT transactions (without possession of money or DPTs by the DPT service provider): The proposed amendments expand the definition of “digital payment token service” and include the service of inducing or attempting to induce any person to enter into or to offer to enter into any agreement for or with a view to buying or selling any DPTs in exchange for any money or any other DPT (whether of the same or a different type). This includes a situation where the entity providing such a service does not come into possession of money or DPTs."

Source: Allen & Gledhill, last revised on 22 Jan 2020

"The Monetary Authority of Singapore (MAS) launched its Consultation Paper on the New Omnibus Act for the Financial Sector, setting out proposals for an expansion and consolidation of its regulatory powers. The proposal will have significant consequences for financial services firms operating in Singapore and especially for service providers working with digital assets (cryptocurrencies).

Regulation of Virtual Asset Service Providers:
To meet FATF standards on the regulation of virtual asset service providers (VASP), the Omnibus Act would introduce a definition of VASP based on the one set out in Singapore’s Payment Services Act (PSA), along with a requirement for VASPs to obtain jurisdictional licenses to operate within Singapore. Based on that definition of VASP, the licensing requirement would apply to firms that deal with or facilitate the exchange of cryptocurrencies, that safeguard cryptocurrencies, or that offer advisory services relating to cryptocurrencies."

VASP AML/CFT Requirements:
The VASP licensing criteria in the Omnibus Act would also require firms to apply comprehensive AML/CFT measures to their cryptocurrency services. The Act does not allow scope for lower risk exemptions to the AML/CFT requirement: VASPs must put the full range of AML/CFT controls in place for all customers using the standards set out in the PSA.

The Omnibus Act would not limit MAS’ oversight to VASPs that operate solely in Singapore. The new rules would mean that overseas VASPs and Singaporean VASPs with overseas operations must ensure that their AML/CFT standards are aligned with those in effect in Singapore."

Source: Comply Advantage