In the recent years, Singapore has emerged as a global hubin technologies such as cryptocurrencies and blockchain.Simultaneously, the Monetary Authority of Singapore, has beentaking steps to actively regulate cryptocurrency business inSingapore. In this piece, we look at the Singapore government'sattitude towards cryptocurrency businesses, the new cryptocurrencyregulation and licensing regime, and the challenges andopportunities facing cryptocurrency businesses inSingapore.
Singapore offers a balanced regulatory and legal environment forcryptocurrencies. The Monetary Authority of Singapore(MAS), Singapore's financial regulatory body,believes in regulating the cryptocurrency ecosystem to monitor anyrisks associated with crypto activities, such as money launderingand terrorist financing, while also ensuring that it doesn'tstifle innovation. The statement given by Singapore's DeputyPrime Minister Tharman Shanmugaratnam in an interview, mostaccurately sums up Singapore's attitude towardscryptocurrencies: "We will continue to encourageexperiments in the blockchain space that may involve the use ofcryptocurrencies. Some of these innovations could turn out to beeconomically or socially useful. But equally, we will stay alert tonew risks."1 In line withthis, MAS has been working towards regulating cryptocurrencyexchanges operating in Singapore. Simultaneously, MAS has alsoissued warnings to investors and the public of the risks ofinvesting in crypto products.2Singapore has also been experimenting with blockchain technologyfor development of cryptocurrency and digital payments.3 Under Project Ubin, MAS ispartnering with blockchain technology company and financialinstitutions to make inter-bank payments using blockchaintechnology.4
Legally, Singapore offers a neutral regime for the growth oftransactions involving cryptocurrency. Singapore law is commonlyused as the governing law in cryptocurrency related contractsbecause of its advanced dispute resolution laws, and a reputationfor being an arbitral friendly and neutral regime.5 In addition, cryptocurrencies arelegal in Singapore and therefore, any contract involvingcryptocurrencies would not be considered illegal.6 This has been the main reason forSingapore to have emerged as the cryptocurrency hub in Asia.
In January 2020, the Payment Services Act (PSA)came into effect to regulate traditional as well as cryptocurrencypayments and exchanges. The intention behind introducing PSA was tostreamline payment services under a single piece of legislation,and calibrate regulations according to the risks such activitiespose by adopting a modular regulatory regime.7 The PSA provides a framework toobtain license to operate cryptocurrency business in Singapore andoutlines money laundering compliances to be met by cryptocurrencyoperators. We discuss a few relevant provisions below:
(1) Digital payments token: The PSA uses theterm "digital payments token" to refer to virtualcurrencies and defines it as any digital representation of valuethat:
a. is expressed as a unit;
b. is not denominated in any currency, and is notpegged by its issuer to any currency;
c. is, or is intended to be, a medium of exchangeaccepted by the public, or a section of the public, as payment forgoods or services or for the discharge of a debt;
d. can be transferred, stored or traded electronically;and
e. satisfies such other characteristics as MAS mayprescribe.8
A few Digital Payments Token (DPT) recognizedby MAS includes Bitcoins and Ether. The PSA further recognizesdigital payment token service as dealing in digital payment tokensand facilitating the exchange of digital payment token.9
(2) License: Any person carrying out digitalpayment token service has to obtain a payment institution license,unless exemptions apply.10 Astandard payment institution license applies to companies withpayment transactions up to $3million per month and a major paymentinstitution license has to be obtained by companies with paymenttransactions which exceed $3million per month. An application forboth these licenses has to be made by a company incorporated inSingapore or overseas, has its permanent place of business orregistered office in Singapore; and has at least one executivedirector who is a Singapore citizen or a permanent resident or is aperson belonging to a class of persons prescribed by the MAS.11
(3) Anti-money laundering (AML)/Countering thefinancing of terrorism (CFT): MAS has released a separatenotice on AML/CFT guidelines for DPT service providers. As per theNotice, DPT service providers are required to set up robustcontrols to detect and prefect money laundering and terrorismfinancing.12 All DPT paymentservice providers have to implement certain measures as a part oftheir internal AML/CFT policy which includes:
a. customer due diligence by verifyingtheir identities and businesses;
b. monitoring of customers' transactions for signsof money laundering and terrorism financing;
c. screening of customers against relevantinternational sanctions list by the United Nations; and
d. maintain detailed records of customers activitiesand out in place a process to report suspicious transactions toMAS.13
MAS also made the Securities and Futures Act(SFA) applicable for public offerings or issues ofdigital tokens and in May 2020, released a new Guide to DigitalToken Offerings. Offers or issues of digital tokens to the public(Offer) will be regulated by MAS if the digitaltokens are "capital market products".14 Capital market products under theSFA include securities, units in a collective investment scheme,derivatives contracts and spot foreign exchange contracts forpurposes of leveraged foreign exchange trading.15 MAS will determine whether adigital token, its characteristics and the rights attached to it,is a type of capital markets products.16
(1) Prospectus requirements and exemptions: Any offerof digital tokens to the public which constitutes securities,17 securities-based derivativescontracts or units in a collective investment scheme, requirescompliance with all the requirements under the SFA includingpreparation of a prospectus in accordance with the SFA andregistration of the offer with MAS.18 However, an Offer may be exemptedfrom these requirements if:
a. the Offer is a small personal offer not exceedingSGD 5 million, within any 12 month period;
b. the Offer is a private placement offer made to notmore than 50 persons within any 12-month period;
c. the Offer is made only to institutional investors(as defined under the SFA);
d. the Offer is made only to accredited investors (asdefined under the SFA).19
(2) Approved exchanges: Only an approvedexchange or a recognized market operator can establish or operate amarket.20 Normally, digital tokensare issued by primary platforms, a platform on which one or moreofferors of digital tokens may make primary offers or issues ofdigital tokens.21 Typically,persons operating a primary platform has to obtain a license fromMAS.
(3) Capital market services license under the SFA: If aperson is operating a primary platform in Singapore in relation todigital tokens which constitutes "capital marketproducts", it will be considered as a "regulatedactivity" under the SFA. Any person carrying on a business inany regulated activity under the SFA requires a capital marketservices (CMS) license. Such a license will onlybe granted if the applicant, which must be a corporation, meetsminimum financial and other requirements as prescribed by theMAS.22 The SFA also providescertain exemptions from the requirement to hold capital marketsservices license.23
In July, 2020, MAS proposed the introduction of a new set ofregulations to govern the financial sector in Singapore, which willalso have impact on the cryptocurrency industry. The intentionbehind the proposed regulations is to protect Singaporeans fromunsuitable entities who can increase the risk associated withcrypto businesses and to clamp down on financial crime in thecrypto ecosystem.24 MAS mainlyintends to introduce new provisions for putting in place thefollowing:
(1) A harmonized andexpanded power to issue orders: MAS has the power to issueprohibition orders to bar persons from conducting certainactivities or holding key roles in financial institutions for acertain period, in cases of serious misconduct.25 However, MAS derives this poweronly from the DFA and the Financial Advisers Act(FAA). MAS cannot issue prohibition orders topersons regulated under other Acts. Therefore, the new proposedlegislation will allow MAS to issue prohibitory orders againstcrypto businesses in case of misconduct.26
(2) Anew Part to regulate virtual asset service providers forAML/CFT: MAS wants to introduce new standards toregulate virtual asset service providers on matters of moneylaundering and terrorism financing, based on the revisedinternational standards of the Financial Action Task Force, theglobal money laundering and terrorist financing watchdog.27 MAS also intends to haveregulatory oversight on entities based in Singapore conductingcrypto business outside of Singapore, for money laundering andterrorism financing related concerns.28
(3) A harmonised power to imposerequirements on technology risk management: MAS wantsto introduce a high maximum penalty for breaches of technology riskmanagement requirements.29 MASintends to introduce a power to issue directions to or makeregulations concerning any financial institution or class offinancial institution for management of technology risks, cybersecurity risks, deliverer of financial services and dataprotection.30
(4) Providing mediators, adjudicators andemployees of an operator of an approved dispute resolution schemewith statutory protection from liability: MAS wantsfinancial institutions to subscribe to a MAS approved disputeresolution scheme to provide the customers with an independent andaffordable avenue for resolving disputes.31
(1) Banking challenges: In the recent past,several start-ups operating cryptocurrency businesses in Singaporefaced operational issues with banks in Singapore. Banks ceaseddoing businesses with cryptocurrencies operators and arbitrarilyclosed their bank accounts.32Speculators believed that this was due to concerns surroundingmoney laundering and terrorism financing, especially due toincreasing initial coin offerings by cryptocurrency businesses,equivalent to initial public offerings in the crypto industry.33 However, to help boost its fintecheconomy, in 2018, MAS agreed to help crypto businesses set up bankaccounts in Singapore by strengthening crypto regulatory regime.34 As MAS started taking measures toregulate the cryptocurrency industry, few banks have startedallowing bank accounts to be opened by crypto businesses. Forinstance, Luno, a cryptocurrency exchange which halted itsactivities in 2017 owing to closure of its bank accounts, resumedoperations in Singapore towards the end of 2019 after its bankaccounts were opened.35 Havingsaid that, the woes of crypto businesses are far from over. Bankingcontinues to remain a challenge and different banks have differentapproaches. Businesses are subjected to extensive diligence beforethey are offered bank accounts, and many banks will outrightdecline such privilege to companies that have any touch points withcryptocurrency.
(2) Increased regulatory powers with MAS: Theproposed Omnibus Act gives MAS broad powers to issue prohibitionorders against crypto businesses and provides a high penalty forbreach technology risk management requirements. The enhancedregulatory powers with MAS may be a cause for concern for cryptobusinesses and especially start-ups looking for a more flexiblepenalty regime.
(3) Regulation of overseas crypto-firms: The biggestchange being proposed under the Omnibus Act is the regulation ofoverseas crypto businesses. This implies that virtual asset serviceproviders will have to ensure that their overseas operations meetthe same regulatory standards as their Singapore operations.36
(1) Crypto-friendly attitude: Singapore'scrypto-friendly attitude and flexible regulatory offers anenvironment to facilitate growth and innovation in the fintechindustry. MAS has been supportive of crypto start-ups and firmsexperimenting with cryptocurrency and blockchain technologies. Thisfriendly climate has been a magnet for several big cryptobusinesses from countries like Australia, Japan and China settingshop in Singapore.37
(2) Regulatory clarity and certainty: Stakeholders fromthe cryptocurrency industry welcomed some of the regulatory changesbrought by MAS, especially the licensing regime under the PSA.Major crypto businesses such as Japanese-based Liquid Group Inc.and London-based Luno have expressed their eagerness to apply for aMAS license, which offers regulatory clarity and certainty tocrypto businesses operating in Singapore.38
(3) Increased consumer confidence in licensedcrypto-operators: The licensing regime under the PSA will helpincrease consumer confidence in the crypto businesses operating inSingapore. Consumers will also be more comfortable in trustinglicensed crypto operators.
(4) Improved access to banking services: Thenew licensing regime under the PSA will facilitate easier access totraditional banking services to crypto businesses. In fact, theAssociation of Cryptocurrency Enterprises and Start-ups recentlyreleased a Code of Practice , under its Standardization of Practicein Crypto Entities (SPICE) initiative, with support from theAssociation of Banks in Singapore and the MAS to help cryptobusinesses apply for a license under the PSA.39 These measures will lead toincreased trust between crypto businesses and banks in Singapore,and improve their access to banking services.
(5) New AML/CFT provisions reduce risk of financialcrimes: The AML/CFT provisions under the PSA reduces the riskof financial crimes which can take place on a crypto platform. TheCode of Practice released by the Association of CryptocurrencyEnterprises and Start-ups also seeks to help crypto businesses putin place robust AML/CFT measures. The Code also promotes bestpractices, including Know-Your-Customer, to help crypto businessescomply with the new regulatory framework.40 While the regulatory regime isrisk-focused, it also offers a flexible framework for crypto-firmsto continue their businesses.
Footnotes
1. Bitcoin.com, No strongcase to ban crypto trading, Singapore says, 7 February, 2018,https://news.bitcoin.com/no-strong-case-to-ban-crypto-trading-singapore-says/.
2. Monetary Authority ofSingapore, Reply to Parliamentary Question on regulation of cryptoderivatives on Approved Exchanges, 6 January, 2020, https://www.mas.gov.sg/news/parliamentary-replies/2020/reply-to-parliamentary-question-on-regulation-of-crypto-derivatives-on-approved-exchanges.
3. Asia Times, Why Singaporeis emerging as global crypto leader, https://asiatimes.com/2020/10/why-singapore-is-emerging-as-global-crypto-leader/.
4. Coin Telegraph,Singapore's Government Blockchain Experiment is a Road toRegulatory Understanding, 20 February, 2018, https://cointelegraph.com/news/singapores-government-blockchain-experiment-is-a-road-to-regulatory-understanding.
5. Anthony Soh and Feei Sy Tham,Singapore: Why Singapore has become Asia's Cryptocurrencyand Blockchain Hub, 15 January, 2020, https://www.mondaq.com/fin-tech/883798/why-singapore-has-become-asia39s-cryptocurrency-and-blockchain-hub.
6. Id.
7. Han Ming Ho & JodephineLaw, Singapore, The Virtual Currency Regulation Review,Ed. 3, September 2020, https://thelawreviews.co.uk/edition/the-virtual-currency-regulation-review-edition-3/1230199/singapore.
8. Section 2, Payment ServicesAct, 2019, https://sso.agc.gov.sg/Acts-Supp/2-2019/Published/20190220?DocDate=20190220.
9. Part 3, First Schedule,Payment Services Act, 2019.
10. Section 5 and 6, PaymentServices Act, supra note 12.
11. Section 6, Payment ServicesAct, supra note 12.
12. Scorechain,Cryptocurrencies Regulatory Landscape in Singapore, https://blog.scorechain.com/cryptocurrencies-regulatory-landscape-in-singapore/.
13. Comply Advantage,Payment Services Act in Singapore, https://complyadvantage.com/knowledgebase/payment-services-act-singapore/.
14. Monetary Authority ofSingapore, A Guide to Digital Token Offerings, 26, May 2020, https://www.mas.gov.sg/-/media/MAS/Sectors/Guidance/Guide-to-Digital-Token-Offerings-26-May-2020.pdf.
15. Section 2(1), Securities andFutures Act, 2001, https://sso.agc.gov.sg/Act/SFA2001.
16. Id.
17. As defined under Section2(1) SFA, this includes: (a) debentures or stocks issued orproposed to be issued by a government; (b) debentures, stocks orshares issued or proposed to be issued by a corporation or bodyunincorporated; (c) any right, option or derivative in respect ofany such debentures, stocks or shares; (d) any right under acontract for differences or under any other contract the purpose orpretended purpose of which is to secure a profit or avoid a loss byreference to fluctuations in - (i) the value or price of any suchdebentures, stocks or shares; (ii) the value or price of any groupof any such debentures, stocks or shares; or (iii) an index of anysuch debentures, stocks or shares; (e) any unit in a collectiveinvestment scheme; (f) any unit in a business trust; (g) anyderivative of a unit in a business trust; or (h) such other productor class of products as the Authority mayprescribe.
18. Sections 240 and 296,Securities and Futures Act, supra note 19.
19. Sections 272A, 302C, 274,304 and 305, Securities and Futures Act, supra note19.
20. Section 6, Securities andFutures Act, supra note 20.
21. Monetary Authority ofSingapore, A Guide to Digital Token Offerings, supra note18, at 2.8.
22. Section 82, Securities andFutures Act, supra note 19.
23. Section 99, Securities andFutures Act, supra note 19.
24. Blockchain News, MASproposes new regulations to tighten crypto businessactivities, 22 July, 2020, https://blockchain.news/news/mas-proposes-new-regulations-tighten-crypto-business-activities.
25. Monetary Authority ofSingapore, Consultation Paper on a New Omnibus Act for theFinancial Sector, at 5, 21July, 2020, https://www.mas.gov.sg/-/media/MAS/News-and-Publications/Consultation-Papers/2020-July-Consultation-on-FSMA/Consultation-Paper-on-a-New-Omnibus-Act-for-the-Financial-Sector.pdf(hereafter, MAS, Consultation Paper on a New Omnibus Act forthe Financial Sector).
26. Id.
27. Id. at6.
28. MAS, Consultation Paperon a New Omnibus Act for the Financial Sector, supranote 29, at 10.
29. Id. at18.
30. Id.
31. Id. at19.
32. Bitcoin.com,Singapore-based Bitcoin Startups Deal with Bank AccountClosures, September 26, 2017, https://news.bitcoin.com/singapore-based-bitcoin-startups-deal-with-bank-account-closures/.
33. Id.
34. The Star, Singapore willhelp crypto firms set up local bank accounts, October 10,2018, https://www.thestar.com.my/business/business-news/2018/10/10/singapore-will-help-crypto-firms-set-up-local-bank-accounts.
35. The Business Times,Crypto firm Luno plans Singapore reboot after bank accountsopen, November 1, 2019, https://www.businesstimes.com.sg/banking-finance/crypto-firm-luno-plans-singapore-reboot-after-bank-accounts-opened.
36. Coindesk, Singapore mayextend crypto regulation to include overseas activities, 21July 2020, https://www.coindesk.com/singapore-mas-considers-extending-crypto-regulation-overseas-activities.
37. Lottie Wells, WhySingapore is Emerging as Global Crypto Leader, Asia Times,October 10, 2020, https://asiatimes.com/2020/10/why-singapore-is-emerging-as-global-crypto-leader/.
38. Bloomberg, New SingaporeLaw Allows Global Crypto Firms to Expand Locally, January 28,2020, https://www.bloomberg.com/news/articles/2020-01-27/singapore-launches-new-regime-for-cryptocurrency-payments-firms.
39. ACCESS, ACCESS rolls outCode of Practice to facilitate application of payment serviceprovider license under Singapore's Payment Services Act,August 13, 2020, https://www.access.org.sg/blogs/press-release/access-rolls-out-code-of-practice-to-facilitate-application-of-payment-service-provider-licence-under-singapore-s-payment-services-act.
40. Coindesk,Singapore's Central Bank backs new Code of Practice forcrypto companies, August 14, 2020, https://www.coindesk.com/singapores-central-bank-backs-new-code-of-practice-for-crypto-companies.
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