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This regulatory analysis will focus on customer due diligence (CDD) timing triggers and is the first of a series that will compare the licensing regimes of e-money operators and banks. It will first lay out the role that e-money plays in three very different jurisdictions: Singapore; the United Kingdom; and the Philippines. It will then examine the CDD trigger requirements for e-money providers in each of these jurisdictions in comparison to the equivalent regulation that applies to banks. This comparison will help to determine whether there are any similarities between e-money and banking regulation in these jurisdictions, at least from an anti-money laundering (AML) perspective, in light of the compliance requirements that these regulations impose. It will then lay out what these similarities (if any) could potentially mean for e-money operators, both in these jurisdictions and further afield.
In October 2022, the Monetary Authority of Singapore (MAS) launched a consultation on revising its transaction limits for e-money payments. Under the proposed limits, the holding limit for e-wallets (the local name for e-money) that are issued by major payment institutions will increase from S$5,000 to S$20,000 (~£12,000), while the yearly transaction limit will increase from S$30,000 to S$100,000 (~£62,000). This consultation closed in November 2022, and the next steps remain to be seen.
Although Singapore is generally a high-income country, these new limits would represent an increase of 300 percent for the holding limit and more than 200 percent for the transaction limit. As the following explains, this also signifies the evolution of e-money in Singapore from a mere alternative to traditional payment methods for smaller transactions to something that could be classed as a viable alternative to debit cards and/or current accounts. The question that remains is whether this phenomenon of e-wallets essentially becoming more and more regulated like banks is unique to Singapore or whether it is part of a wider trend of e-money regulation across jurisdictions.
The Jurisdictional Approach
The use of e-money differs quite a bit in various markets and regions. Below is a quick snapshot of the roles it plays in our three chosen markets, as well as a brief overview of the markets at large.
Singapore
E-wallets have been widely adopted in Singapore as an alternative to the island nation’s well-established card infrastructure. In the first half of 2022 alone, Singaporeans made more than 1bn e-money transactions, outnumbering the number of debit and credit card transactions over the same period, according to the MAS. The vast majority of these transactions were low-value ones as evidenced by the same statistics published by the MAS, with card transaction values (more than S$58bn) far exceeding e-money (more than S$1bn).
The introduction of the standardised Singapore Quick Response Code (SGQR) standard, which is co-owned by the MAS and the Infocomm Media Development Authority (IMDA), in 2018 further incentivised this growth. The standard allows consumers to make seamless payments using their e-wallets by scanning a standardised QR code regardless of what e-wallet or payment app they use.
This indicates that e-money in Singapore currently sits as the go-to cashless payment method for small-value transactions, although it remains to be seen whether the increase in transaction limits will see e-money becoming a real contender to the debit and credit card market.
Philippines
Financial inclusion has been growing quickly in the Philippines, with digital payments increasing from 14 percent of total cashless transactions in 2019 to 20.1 percent in 2020, according to the Bangko Sentral ng Pilipinas (BSP), a significant milestone in a country where overall financial inclusion remains low.
The 2021 Financial Inclusion Survey published by the BSP indicates that e-money has been a key driver of this growth. While total account ownership (this includes e-money and bank accounts) now exceeds 50 percent, the use of e-money far outnumbers formal bank accounts, with 36 percent of Filipinos having an e-money account compared with 23 percent with formal bank accounts. This illustrates the unique role of e-money in the Philippines as a de-facto current account, allowing millions of people access to a financial account for the first time.
United Kingdom
In the UK, e-money firms are allowed to issue cards and offer current bank accounts (see payment licensing types/definitions); however, they are not allowed to provide credit using the deposits they hold under Section 32(2) of the Electronic Money Regulations 2011, unlike fully fledged banks.
Fintechs licensed as e-money firms have proven popular as so-called “challenger banks” as a stepping stone to becoming a fully licensed bank; for example, Monzo had 5.1m customers as of 2021 and was previously licensed as an e-money institution but is now licensed as a bank. The same is true for local fintech Revolut (and its money transfer service), which reported more than 15m customers worldwide in 2020 alone.
Looking at the list of licensed e-money institutions in the UK, the majority of these are firms that provide a specific niche service, such as remittance or payment processing services, rather than operating an e-wallet service for general retail transactions, as is the case in Singapore and the Philippines.
Customer Due Diligence
The following section will examine the CDD timing requirements for e-money providers and banks in the three jurisdictions.
Singapore
In Singapore, the CDD requirements for e-money issuers are, as follows: “Account issuance service providers, including those offering e-wallets, are considered payments service providers and must perform customer due diligence (CDD) when:
(a) the payment service provider establishes business relations with any customer;
(b) the payment service provider effects or receives any funds by cross-border wire transfer, for any customer who has not otherwise established business relations with the payment service provider;
(c) the payment service provider undertakes any transaction for the purposes of carrying on its business of providing cross-border money transfer service, for any customer who has not otherwise established business relations with the payment service provider;
(d) the payment service provider undertakes any transaction (except for a specified money-changing transaction where the money is funded from an identifiable source) of a value exceeding S$5,000 for any customer who has not otherwise established business relations with the payment service provider;
(e) there is a suspicion of money laundering or terrorism financing, notwithstanding that the payment service provider would not otherwise be required by this Notice to perform the measures as required by paragraphs 7, 8 and 9; or
(f) the payment service provider has doubts about the veracity or adequacy of any information previously obtained.” Section 7.3, MAS Notice PSN01 on Prevention of Money Laundering and Countering the Financing of Terrorism - Holders of Payment Services Licence (Specified Payment Services).
Banks, on the other hand, are required to perform CDD when:
“(a) the bank establishes business relations with any customer;
(b) the bank undertakes any transaction of a value exceeding S$20,000, other than any digital token transaction referred to in paragraph 6.3(c), for any customer who has not otherwise established business relations with the bank;
(c) the bank undertakes any digital token transaction for any customer who has not otherwise established business relations with the bank;
(d) the bank effects or receives any funds by domestic wire transfer, or by cross-border wire transfer that exceeds S$1,500, for any customer who has not otherwise established business relations with the bank;
(e) the bank effects or receives any digital tokens by value transfer, for any customer who has not otherwise established business relations with the bank;
(f) there is a suspicion of money laundering or terrorism financing, notwithstanding that the bank would not otherwise be required by this Notice to perform the measures as required by paragraphs 6, 7 and 8;
(g) the bank has doubts about the veracity or adequacy of any information previously obtained.”
The CDD requirements for banks appear to be almost identical to those for e-money issuers, albeit with increased transaction limits. Both providers must conduct CDD when establishing relationships with new customers and when they conduct cross-border wire transfers that exceed specified limits for new customers. Both providers must also conduct CDD when they suspect there is a risk of money laundering or terrorist financing, and where there are doubts of the veracity and accuracy of previously obtained information. Although the lower transaction limit triggers for e-money issuers reflect the size of the transactions they perform, the essential CDD triggers are identical demonstrating that the CDD trigger requirements for e-money is becoming increasingly similar to those for banks.
Philippines
In the Philippines, in accordance with Section 921-Q(b) of the Manual of Regulation for Non-Bank Financial Institutions, a non-bank e-money issuer is required to perform CDD when:
- It establishes business relations with any customer.
- It undertakes any occasional but relevant business transaction for any customer who has not otherwise established relations with the covered person.
- There is a suspicion of money laundering or terrorism financing.
- There is doubt about the veracity or adequacy of previously obtained customer identification data.
The CDD requirements for e-money issuers look largely similar to Singapore’s, without the addition of transaction limits.
The CDD triggers for banks in the Philippines are identical to those imposed on e-money issuers. Section 921(b) of the Manual of Regulation of Banks 2020 states that a reporting institution must conduct CDD when:
- It establishes business relations with any customer.
- It undertakes any occasional but relevant business transaction for any customer who has not otherwise established relations with the covered person.
- There is a suspicion of money laundering or terrorism financing.
- There is doubt about the veracity or adequacy of previously obtained customer identification data.
A closer examination reveals the entirety of the AML regulations are identical for banks and e-money issuers.
As e-wallets in the Philippines are used as sort of quasi-current bank accounts, some similarities in AML regimes are to be expected; however, the fact that they are identical illustrates the significance the Bangko Sentral Ng Pilipinas is giving e-money issuers.
United Kingdom
Both e-money institutions and banks in the UK are considered “relevant persons” under the the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs), and in accordance with Regulation 27(1) an e-money institution or bank must apply CDD measures when it does any of the following:
- Establishes a business relationship.
- Carries out an occasional transaction.
- Suspects money laundering or terrorist financing.
- Doubts the veracity of documents or information previously obtained for
- the purpose of identification or verification.
The only difference for e-money institutions is that they are exempt from carrying out CDD measures under Regulation 38(1) where:
- The maximum amount which can be stored electronically is €250, or (if the amount stored can only be used in the United Kingdom), €500.
- The payment instrument used in connection with the electronic money (“the relevant payment instrument”) is (i) not reloadable; or (ii) is subject to a maximum limit on monthly payment transactions of €250 which can only be used in the United Kingdom.
In such a situation, the risk of money laundering is considered to be low.
Here again we see a similar pattern, with AML regulations being applied almost uniformly to e-money institutions and banks. Although e-money institutions do enjoy some exceptions, these have only been granted for transactions that pose little to no AML risk. Given the niche nature of how e-money institutions are used in the UK, and the low value of the thresholds for the exemptions, these exceptions can be said to be in equivalence to the risk they pose.
Bringing it all together - CDD Triggers/Requirements by Country/Institution
Country & Institution
Establishing New Relationships
Conducting Foreign Transfers
Exceeding Prescribed Thresholds
Doubts about Previous Information
Suspicions of AML/CTF
Exceptions
Singapore: E-Money
Yes
Yes
Yes
Yes
Yes
Yes
Singapore: Banks
Yes
Yes
Yes
Yes
Yes
No
Philippines: E-Money
Yes
Yes
No
Yes
Yes
No
Philippines: Banks
Yes
Yes
No
Yes
Yes
No
UK: E-Money
Yes
Yes
Yes
Yes
Yes
Yes
UK: Banks
Yes
Yes
Yes
Yes
Yes
No
Looking at the table above, it is clear that the AML, and specifically the CDD regimes for e-money institutions and banks, contain a number of similarities across jurisdictions. This is reflective of the commitment three very different jurisdictions have made to combat money laundering and terrorist financing.
What also becomes apparent is the difference in equivalence of CDD requirements between e-money companies and banks. E-money operators in countries where e-money remains a niche payment method, such as in Singapore and the UK, have a number of exceptions to CDD requirements for e-money transactions which governments believe pose little to no AML risk.
As the popularity of e-money increases; however, these exceptions begin to reduce in number, as in Singapore where e-money firms are only exempt from CDD requirements for specified providers or in the Philippines where e-money provides a financial lifeline to the previously unbanked and no CDD exceptions exist at all.
How can e-money operators leverage this trend for ‘bank-lite’ regulation?
Looking at the CDD triggers for banks and e-money providers in Singapore, the Philippines and the UK, it is clear that CDD regulations for e-money and banks are similar across all three.
In markets where e-money is not yet regulated, operators can prepare for eventual AML regulation by looking at existing banking CDD regulation, as it is likely that any new regulation will reflect this.
In markets where e-money is beginning to be regulated and becoming more significant to a country’s payment infrastructure, or where e-money is experiencing rapid and widespread growth, operators may again look at banking AML regulation to see how it has evolved over time.
Looking at existing AML controls is likely to provide a snapshot of future regulation for e-money. Operators in these markets could also leverage existing banking AML compliance resources to help them better comply with upcoming and/or existing regulatory requirements.
