Strengthening AML/CFT Controls of Digital Payment Token (DPT) Providers

The Monetary Authority of Singapore (MAS) recently released an infographic setting out recent international developments and MAS’ supervisory expectations on anti-money laundering / countering the financing of terrorism (AML/CFT) controls for the Digital Payment Token (DPT) sector operating under the Payment Services Act (PSA).

It was published to raise industry awareness to the money laundering and terrorism financing (ML/TF) risks in the Digital Payment Token (DPT) sector, providing Monetary Authority of Singapore (MAS) supervisory information to help Digital Payment Token (DPT) service providers under the Payment Services Act (PSA) implementing effective anti-money laundering / countering the financing of terrorism (AML/CFT) policies, procedures and controls to deal with money laundering and terrorism financing (ML/TF) risks.

International Developments

The Financial Action Task Force (FATF) revised its Standards to impose anti-money laundering / countering the financing of terrorism (AML/CFT) requirements on virtual assets (VAs) and virtual asset service providers (VASPs) – also known as digital assets and digital asset service providers. Virtual asset service providers (VASPs) includes entities known as Digital Payment Token (DPT) service providers which operate under the Payment Services Act (PSA) with the supervision of the Monetary Authority of Singapore (MAS). Such entities are required to be exempted or licensed by the Monetary Authority of Singapore (MAS) under the Payment Services Act (PSA) as Standard Payment Institutions (SPI) or Major Payment Institutions (MPI).

The Financial Action Task Force (FATF) released Recommendation 15 in October 2018 to define virtual assets (VAs) and virtual asset service providers (VASPs) and clarify how the Financial Action Task Force (FATF) Standards apply to them [including Digital Payment Token (DPT) service providers] such as the Travel Rule – which has been introduced in Singapore by the Monetary Authority of Singapore (MAS) in Notice PSN02 Prevention of Money Laundering and Countering the Financing of Terrorism – Digital Payment Token Service. The Financial Action Task Force (FATF) also released an interpretive note and guidance to help jurisdictions and virtual asset service providers (VASPs) with implementation and compliance.

Higher Inherent Money Laundering / Terrorism Financing (ML/TF) Risks

Virtual Assets (VAs) including Digital Payment Tokens (DPTs) carry higher inherent money laundering and terrorism financing (ML/TF) risks due to its nature of:

• Pseudonymity
• Near-instantaneous value transfer medium
• Cross-border nature of transactions

In July 2020, the Financial Action Task Force (FATF) noted in its 12-month review that virtual assets (VAs) were being commonly used to layer illicit transactions, with the COVID-19 pandemic resulting in an increased use of virtual assets (VAs) in money laundering.

In Singapore, a series of enforcement actions against illicit Digital Payment Token (DPT) activities have been taken. The Monetary Authority of Singapore (MAS) has also identified several virtual asset service providers (VASPs) that are operating without a licence or exemption under the Payment Services Act (PSA) from the Monetary Authority of Singapore (MAS).

Overview of the Monetary Authority of Singapore (MAS)’ Anti-Money Laundering / Countering the Financing of Terrorism (AML/CFT) Requirements and Expectations for the Digital Payment Token (DPT) sector

Digital Payment Token (DPT) service providers are regulated under the Payment Services Act (PSA) by the Monetary Authority of Singapore (MAS), introduced on 28 January 2020. As of now, a significant number are operating under an exemption in the Payment Services (Exemption for Specified Period) Regulations 2019 as they have submitted their licence application to the Monetary Authority of Singapore (MAS) by 28 July 2020.

Notice PSN02 Prevention of Money Laundering and Countering the Financing of Terrorism – Digital Payment Token Service and the Guidelines to Notice PSN02 on Prevention of Money Laundering and Countering the Financing of Terrorism – Digital Payment Token Service were issued setting out anti-money laundering / countering the financing of terrorism (AML/CFT) requirements for Digital Payment Token (DPT) service providers.

Entities that (a) deal in Digital Payment Tokens (DPT); (b) facilitate the exchange of Digital Payment Tokens (DPTs); (c) facilitate the transmission of Digital Payment Tokens (DPTs); (d) and/or provide custodian wallet services in relation to Digital Payment Tokens (DPTs), will therefore be required to be licensed as Digital Payment Token (DPT) service providers, and comply with the abovementioned anti-money laundering / countering the financing of terrorism (AML/CFT) requirements.

These requirements include:

• A formalised approach to identifying and assessing risks of new products – such as new Digital Payment Tokens (DPTs) on its platform
• Ongoing monitoring – monitoring business relations with customers on an ongoing basis, to ensure that transactions are consistent with knowledge of the customer, its business and risk profile, and source of funds
• Value transfers – When value transfers are made between virtual asset service providers (VASPs) on behalf of their customers, the originating Digital Payment Token (DPT) service provider must transmit necessary originator and beneficiary information to the beneficiary virtual asset service provider (VASP), in an immediate and secure manner [this is in line with the Travel Rule].
• Regular reviews of anti-money laundering / countering the financing of terrorism (AML/CFT) controls to keep up to date with regulatory developments such as:
  • Anti-money laundering / countering the financing of terrorism (AML/CFT) policies and procedures
  • Enterprise-wide risk assessment (EwRA)
  • Anti-money laundering / countering the financing of terrorism (AML/CFT) compliance arrangements

To view the infographic, click here.

How can Argus (now Waystone Compliance) Assist?

We, at Argus Global (now Waystone Compliance), are a team of consultants who specialize in regulatory compliance for financial institutions. We assist to do the following:

• Provide outsourced compliance services
• Provide secondment compliance services
• Provide compliance policies including on AML/CFT
• Internal audit services
• Compliance Training including on AML/CFT

Please reach out to us for an initial discussion at [email protected]

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