Singapore is a major economic and financial hub in Asia, ranking alongside — and by many measures surpassing — Hong Kong and Shanghai as the banking and finance center of East Asia.
Buoyed by political stability, strong economic growth and a highly educated and globally-connected population, the Lion City has emerged as a bastion of both traditional and digital finance — as well as playing host to a vibrant and growing FinTech sector.
Singapore has taken a firm stance against money laundering and terrorist financing, implementing robust Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations. These policies are designed to prevent illicit funds from entering the country and to ensure that financial institutions conduct due diligence to identify their customers and verify their identities.
The Monetary Authority of Singapore (MAS), the country’s central bank and financial regulator, plays a key role in enforcing these regulations. It requires financial institutions operating in Singapore to implement internal policies, procedures, and controls to prevent money laundering and terrorist financing. The MAS also conducts regular inspections and examinations to ensure that these institutions comply with the regulations.
The Payment Services Act
The Payment Services Act (PSA) is a regulatory framework introduced by the MAS to enhance the regulation of payment services in Singapore. This act applies to all payment service providers operating in Singapore, including both new and existing players. The PSA provides for the regulation of payment systems and payment service providers, with the goal of promoting innovation, competition, and consumer protection.
The introduction of this regulatory framework is timely, given the increasing importance of payment services in the digital economy.
The PSA has three main objectives:
- To enhance the resilience and efficiency of payment systems,
- To ensure that payment service providers safeguard customer funds and data, and
- To promote the adoption of electronic payments in Singapore.
Under the PSA, payment service providers are required to obtain a license from the MAS before they can operate in Singapore. The license requirements depend on the risks associated with different types of payment services. For example, providers of high-risk payment services, such as e-wallets, are subject to more stringent requirements than providers of low-risk payment services, such as remittance services.
Transaction services covered by the PSA include:
- Domestic money transfers
- International money transfers
- Account issuance
- Merchant acquisitions services
- Digital payment token services
- E‑money issuance
In addition to licensing requirements, the PSA also sets out rules on customer protection, anti-money laundering and countering the financing of terrorism, and cybersecurity. Payment service providers need to comply with these rules to ensure that they are not used for illegal activities, and to protect customer data and funds.
The PSA is a significant step towards strengthening the regulatory framework for payment services in Singapore. It provides greater clarity and consistency in the regulatory requirements for payment service providers, which will help to build consumer confidence in digital payments.
With the increasing adoption of electronic payments in Singapore, the PSA will play a crucial role in ensuring the security and integrity of the payment system.
KYC and AML Rules
One example of the MAS’s efforts to promote AML and KYC compliance is the issuance of the Guidelines on Prevention of Money Laundering and Countering the Financing of Terrorism. This document sets out the supervisory expectations of the MAS concerning AML and KYC best practices for financial institutions (FIs) and Virtual Asset Service Providers (VASPs), including customer due diligence (CDD), record-keeping, and internal controls.
Another way the MAS promotes AML compliance is by working closely with other international organizations and regulators to identify and address emerging AML risks.
For instance, Singapore is a member of the Financial Action Task Force (FATF), an intergovernmental body that sets global standards for AML measures. As a FATF member, Singapore must comply with its standards and undergo regular mutual evaluations to assess compliance and effectiveness.
In addition to its regulatory efforts, the MAS is also committed to fostering a culture of AML and KYC awareness among FIs, VASPs and the public. It regularly publishes warnings about emerging AML risks and encourages financial institutions to strengthen their risk management frameworks.
Singapore’s AML and KYC regulations have proven effective in safeguarding the country’s financial system against money laundering and terrorist financing. This has helped to maintain Singapore’s reputation as a safe and reputable financial hub, attracting investment and business from all over the world.
MAS and VASPs
The Monetary Authority of Singapore (MAS) has taken a proactive approach to regulating VASPs in order to combat money laundering and terrorism financing risks associated with virtual assets.
MAS requires VASPs to be registered as well as complying with AML and Counter Financing of Terrorism (CFT) regulations. This includes performing CDD, ongoing transaction monitoring, and suspicious activity reporting.
MAS has also imposed specific requirements for VASPs that go beyond typical AML/CFT regulations. These requirements include segregating customer assets from the VASP’s own assets, requiring the appointment of a local agent to provide legal and administrative support, and implementing robust cybersecurity measures.
In addition to these measures, MAS has also established a regulatory sandbox where VASPs can test innovative financial technology products and services in a closed environment under the supervision of MAS. This has led to greater technological advancements in the financial industry while allowing MAS to monitor and regulate any potential risks.
MAS’s approach to regulating VASPs is comprehensive and forward-thinking, serving as an example for other regulatory bodies around the world. The regulatory authority has also recently passed the Singapore Financial Services and Markets Bill (FSM Bill), which was approved by the country’s parliament in April 2022. According to a MAS board member, FSM Bill seeks to reduce the “reputational risks brought by digital token service providers created in Singapore” that provide digital token and virtual asset services beyond Singapore’s borders. The FSM Bill creates clear guidelines for licensing such Singapore-based operators by making them adhere to AML/CFT requirements.
How to comply
VASPs need to comply with MAS regulations, but may not be aware of all the necessary KYC checks that are required.
Without proper KYC checks in place, VASPs risk non-compliance and potential fines or other penalties from MAS.
To ensure compliance with MAS regulations, VASPs should conduct a range of KYC checks on their customers including:
- Identity verification
- Address verification
- Telephone number verification
- Source of funds/wealth validation
- Ongoing monitoring for suspicious activities
Additionally, VASPS need to have robust customer due diligence processes in place to identify any high-risk customers or transactions. With these measures in place, VASPs can rest assured that they are meeting MAS requirements and protecting themselves from potential risks.
How KYC-Chain can help
Is your business regulated by Singapore’s MAS? KYC-Chain’s end-to-end onboarding workflow solution allows our clients to securely and efficiently carry out the necessary KYC checks to comply with Singapore’s AML laws — as well as a long list of other global jurisdictions.
Get in touch and we’ll be happy to arrange a demo and tell you more about how KYC-Chain can be your KYC onboarding solution.