Safeguarding Requirements for Client Money under the Payment Services Act 2019 (PS Act)

The Payment Services Act 2019 (PS Act) of Singapore is a comprehensive regulatory framework that governs payment service providers to enhance the safety, security, and efficiency of payment systems. One of the critical areas under the PS Act is the safeguarding of customer money, which ensures that customers’ funds are protected from misuse and insolvency risks.

Key Safeguarding Requirements

Under the PS Act, payment service providers (PSPs) offering services, such as e-money issuance, or money transfer, are required to safeguard customer funds. The relevant provisions and requirements include:

1. Segregation of Client Money

Section 23 of the PS Act stipulates that licensees must ensure customer money is segregated from their operational funds. This means maintaining separate bank accounts designated solely for holding customer funds to prevent commingling with the company’s assets. This separation protects customer money in the event of the PSP’s insolvency.

2. Safeguarding Arrangements

A major payment institution must ensure that money received from, or on account of, a customer for domestic or cross-border money transfer services or on account of merchant acquisition is
safeguarded if it continues to hold at the end of the business day.
Similarly, a major payment institution must safeguard customer’s funds, at all times, received in exchange for issuing e-money except where these funds are received for:

• Payments made to reduce a customer’s debt to the institution,
• Refunds or repayments made by the institution to the customer,
• Funds used to pay service fees or charges imposed by the institution,
• Payments made to a recipient as per customer instructions (whether received or not) or
• Money paid to another person who is legally entitled to it.

This safeguarding can be done in one of the following manners:

1. by an undertaking, from a safeguarding institution, such as a bank licensed in Singapore, to be fully liable to the customer for the relevant money;
2. by a guarantee given by a safeguarding institution for the amount of the relevant money;
3. by depositing the relevant money in a trust account maintained with a safeguarding institution.

3. Timely Safeguarding

PSPs are required to safeguard customer money within a specified period, usually by the end of the next business day after receiving the funds. This ensures that customers’ funds are protected from misuse and insolvency risks.

4. Regular Reconciliation

PSPs must reconcile their records of customer funds daily. This process involves verifying that the amounts held in safeguarding accounts match the total funds owed to customers. Discrepancies must be resolved immediately to maintain compliance.

5. Reporting and Auditing

PSPs must regularly report to the Monetary Authority of Singapore (MAS) on their safeguarding arrangements. They are also subject to periodic audits to ensure compliance with safeguarding obligations.

Consequences of Non-Compliance

Non-compliance with safeguarding requirements can lead to severe penalties, including fines, suspension of the PSP’s license, or other regulatory actions by MAS. PSPs must establish robust
internal controls and governance frameworks to ensure adherence to these regulations.

Why Safeguarding Matters

The safeguarding of customer money is vital for maintaining trust and confidence in payment services. It mitigates risks associated with insolvency and misuse of funds, providing customers with assurance that their money is secure.

How We Can Help

We at Ingenia Consultants Pte. Ltd. support our clients in navigating the safeguarding requirements under the PS Act. We specialize in helping PSPs comply with regulatory obligations, including setting up appropriate safeguarding mechanisms.

For any further information, please contact:
Vijay Bharadwaj
Director
Ingenia Consultants Pte. Ltd.
vijay.bharadwaj@ingenia-consultants.com