Q: What are the consumer safeguards in place?
Given the scale of their operations and accompanying risk, major payment institutions are subject to more rules than standard payment institutions.
For example, they must comply with requirements to safeguard money received from customers and stored as e-money in digital wallets.
This can either be in the form of an undertaking or a guarantee given by a bank or financial institution in Singapore to be fully liable to the customer for the money. Alternatively, they can deposit customer funds into a trust account maintained by a bank or financial institution here.
“These safeguards are meant to ensure that customers’ funds are kept separate from other funds – such as the digital wallet provider’s own proprietary funds – and not used for payment of the digital wallet provider’s debts,” said Ms Elaine Chan, co-head of financial services regulatory practice at WongPartnership.
Standard payment institutions do not need to adhere to these requirements, although they must disclose this to their customers.
Authorities have previously said the lighter regulation for this category of payment services firms is in line with the smaller scale of operations, as well as to encourage innovation.
Asked if this means one is safer than the other, WongPartnership partner Tian Sion Yoong said: “To the extent that a major payment institution has these regulatory requirements to safeguard customer money, then perhaps it could be seen as ‘safer’ in that sense.”
But a standard payment institution may decide to put in place these safeguards despite not being mandatory, he added.
Consumers who have concerns should check directly with the institutions about what is being done to safeguard customers’ money, said Mr Tian, who is a partner at the law firm’s financial services regulatory and financial technology practices.
Other experts noted that the Monetary Authority of Singapore (MAS) has a “stringent” process when assessing applications, be it major or standard payment institutions, thereby ensuring that only those who meet its standards get awarded a licence.
Applicants are required to submit detailed information on their policies regarding consumer protection, cybersecurity, anti-money laundering and others. They then go through several tests and simulations conducted by the regulator, said Mr Leong Chuo Ming, partner at Withers KhattarWong.
“The application process is actually quite brutal because MAS really wants to make sure these providers know what they are doing,” he added.
Other safeguards include e-wallet providers being barred from providing cash withdrawal services and having a cap of S$5,000 on the amount of funds that can be stored in these digital wallets.
These are partly intended to protect users, as well as ensuring stability of the overall financial system and deter money laundering, said Ms Etelka Bogardi, financial services regulatory partner at Norton Rose Fulbright.
Q: Some digital wallet providers have a clause that says users may not be able to recover their money if the business fails. Should I be worried?
No, according to experts that CNA spoke to.
Mr Leong described the clause as a “standard” inclusion in the terms and conditions as a way to protect a business from “as much unforeseen circumstances as possible”.
Ms Bogardi echoed that the clause lays out the worst-case scenario, and is no different from risk disclosure statements found in other types of service agreements.
And should a major payment institution become insolvent, the regulatory safeguards will kick in to allow a better prospect of recovery, the lawyers said.
For example, if there was an undertaking or guarantee from a bank, customers may seek to recover their funds from the bank, said Mr Daniel Liu, partner at WongPartnership’s restructuring and insolvency and special situations advisory practices.
And if the customer funds have been deposited into a valid trust account, these funds would be considered “ringfenced” and not part of the company’s assets for liquidation.
“In terms of ownership, they would belong to the customer,” Mr Liu said, adding that as part of the legal process, customers will have to file a proof of debt with the liquidator.
“It will take some time because the liquidators need to take control of the affairs of the company and understand what’s going on. But if a valid trust has been declared over the customer’s funds, that customer will likely be able to get his or her money back.”