In the recent years, Singapore has emerged as a global hub
in technologies such as cryptocurrencies and blockchain.
Simultaneously, the Monetary Authority of Singapore, has been
taking steps to actively regulate cryptocurrency business in
Singapore. In this piece, we look at the Singapore government’s
attitude towards cryptocurrency businesses, the new cryptocurrency
regulation and licensing regime, and the challenges and
opportunities facing cryptocurrency businesses in
Singapore.
Singapore government’s attitude towards cryptocurrency
businesses
Singapore offers a balanced regulatory and legal environment for
cryptocurrencies. The Monetary Authority of Singapore
(MAS), Singapore’s financial regulatory body,
believes in regulating the cryptocurrency ecosystem to monitor any
risks associated with crypto activities, such as money laundering
and terrorist financing, while also ensuring that it doesn’t
stifle innovation. The statement given by Singapore’s Deputy
Prime Minister Tharman Shanmugaratnam in an interview, most
accurately sums up Singapore’s attitude towards
cryptocurrencies: “We will continue to encourage
experiments in the blockchain space that may involve the use of
cryptocurrencies. Some of these innovations could turn out to be
economically or socially useful. But equally, we will stay alert to
new risks.”1 In line with
this, MAS has been working towards regulating cryptocurrency
exchanges operating in Singapore. Simultaneously, MAS has also
issued warnings to investors and the public of the risks of
investing in crypto products.2
Singapore has also been experimenting with blockchain technology
for development of cryptocurrency and digital payments.3 Under Project Ubin, MAS is
partnering with blockchain technology company and financial
institutions to make inter-bank payments using blockchain
technology.4
Legally, Singapore offers a neutral regime for the growth of
transactions involving cryptocurrency. Singapore law is commonly
used as the governing law in cryptocurrency related contracts
because of its advanced dispute resolution laws, and a reputation
for being an arbitral friendly and neutral regime.5 In addition, cryptocurrencies are
legal in Singapore and therefore, any contract involving
cryptocurrencies would not be considered illegal.6 This has been the main reason for
Singapore to have emerged as the cryptocurrency hub in Asia.
New crypto regulation and licensing regime in Singapore
Payment Services Act, 2019
In January 2020, the Payment Services Act (PSA)
came into effect to regulate traditional as well as cryptocurrency
payments and exchanges. The intention behind introducing PSA was to
streamline payment services under a single piece of legislation,
and calibrate regulations according to the risks such activities
pose by adopting a modular regulatory regime.7 The PSA provides a framework to
obtain license to operate cryptocurrency business in Singapore and
outlines money laundering compliances to be met by cryptocurrency
operators. We discuss a few relevant provisions below:
(1) Digital payments token: The PSA uses the
term “digital payments token” to refer to virtual
currencies and defines it as any digital representation of value
that:
a. is expressed as a unit;
b. is not denominated in any currency, and is not
pegged by its issuer to any currency;
c. is, or is intended to be, a medium of exchange
accepted by the public, or a section of the public, as payment for
goods 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 may
prescribe.8
A few Digital Payments Token (DPT) recognized
by MAS includes Bitcoins and Ether. The PSA further recognizes
digital payment token service as dealing in digital payment tokens
and facilitating the exchange of digital payment token.9
(2) License: Any person carrying out digital
payment token service has to obtain a payment institution license,
unless exemptions apply.10 A
standard payment institution license applies to companies with
payment transactions up to $3million per month and a major payment
institution license has to be obtained by companies with payment
transactions which exceed $3million per month. An application for
both these licenses has to be made by a company incorporated in
Singapore or overseas, has its permanent place of business or
registered office in Singapore; and has at least one executive
director who is a Singapore citizen or a permanent resident or is a
person belonging to a class of persons prescribed by the MAS.11
(3) Anti-money laundering (AML)/Countering the
financing of terrorism (CFT): MAS has released a separate
notice on AML/CFT guidelines for DPT service providers. As per the
Notice, DPT service providers are required to set up robust
controls to detect and prefect money laundering and terrorism
financing.12 All DPT payment
service providers have to implement certain measures as a part of
their internal AML/CFT policy which includes:
a. customer due diligence by verifying
their identities and businesses;
b. monitoring of customers’ transactions for signs
of money laundering and terrorism financing;
c. screening of customers against relevant
international sanctions list by the United Nations; and
d. maintain detailed records of customers activities
and out in place a process to report suspicious transactions to
MAS.13
Securities and Futures Act
MAS also made the Securities and Futures Act
(SFA) applicable for public offerings or issues of
digital tokens and in May 2020, released a new Guide to Digital
Token Offerings. Offers or issues of digital tokens to the public
(Offer) will be regulated by MAS if the digital
tokens are “capital market products”.14 Capital market products under the
SFA include securities, units in a collective investment scheme,
derivatives contracts and spot foreign exchange contracts for
purposes of leveraged foreign exchange trading.15 MAS will determine whether a
digital token, its characteristics and the rights attached to it,
is a type of capital markets products.16
(1) Prospectus requirements and exemptions: Any offer
of digital tokens to the public which constitutes securities,17 securities-based derivatives
contracts or units in a collective investment scheme, requires
compliance with all the requirements under the SFA including
preparation of a prospectus in accordance with the SFA and
registration of the offer with MAS.18 However, an Offer may be exempted
from these requirements if:
a. the Offer is a small personal offer not exceeding
SGD 5 million, within any 12 month period;
b. the Offer is a private placement offer made to not
more 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 (as
defined under the SFA).19
(2) Approved exchanges: Only an approved
exchange or a recognized market operator can establish or operate a
market.20 Normally, digital tokens
are issued by primary platforms, a platform on which one or more
offerors of digital tokens may make primary offers or issues of
digital tokens.21 Typically,
persons operating a primary platform has to obtain a license from
MAS.
(3) Capital market services license under the SFA: If a
person is operating a primary platform in Singapore in relation to
digital tokens which constitutes “capital market
products”, it will be considered as a “regulated
activity” under the SFA. Any person carrying on a business in
any regulated activity under the SFA requires a capital market
services (CMS) license. Such a license will only
be granted if the applicant, which must be a corporation, meets
minimum financial and other requirements as prescribed by the
MAS.22 The SFA also provides
certain exemptions from the requirement to hold capital markets
services license.23
Proposed Omnibus Act for the financial sector by
MAS
In July, 2020, MAS proposed the introduction of a new set of
regulations to govern the financial sector in Singapore, which will
also have impact on the cryptocurrency industry. The intention
behind the proposed regulations is to protect Singaporeans from
unsuitable entities who can increase the risk associated with
crypto businesses and to clamp down on financial crime in the
crypto ecosystem.24 MAS mainly
intends to introduce new provisions for putting in place the
following:
(1) A harmonized and
expanded power to issue orders: MAS has the power to issue
prohibition orders to bar persons from conducting certain
activities or holding key roles in financial institutions for a
certain period, in cases of serious misconduct.25 However, MAS derives this power
only from the DFA and the Financial Advisers Act
(FAA). MAS cannot issue prohibition orders to
persons regulated under other Acts. Therefore, the new proposed
legislation will allow MAS to issue prohibitory orders against
crypto businesses in case of misconduct.26
(2) A
new Part to regulate virtual asset service providers for
AML/CFT: MAS wants to introduce new standards to
regulate virtual asset service providers on matters of money
laundering and terrorism financing, based on the revised
international standards of the Financial Action Task Force, the
global money laundering and terrorist financing watchdog.27 MAS also intends to have
regulatory oversight on entities based in Singapore conducting
crypto business outside of Singapore, for money laundering and
terrorism financing related concerns.28
(3) A harmonised power to impose
requirements on technology risk management: MAS wants
to introduce a high maximum penalty for breaches of technology risk
management requirements.29 MAS
intends to introduce a power to issue directions to or make
regulations concerning any financial institution or class of
financial institution for management of technology risks, cyber
security risks, deliverer of financial services and data
protection.30
(4) Providing mediators, adjudicators and
employees of an operator of an approved dispute resolution scheme
with statutory protection from liability: MAS wants
financial institutions to subscribe to a MAS approved dispute
resolution scheme to provide the customers with an independent and
affordable avenue for resolving disputes.31
Way forward: Challenges and opportunities for crypto businesses
in Singapore
Challenges
(1) Banking challenges: In the recent past,
several start-ups operating cryptocurrency businesses in Singapore
faced operational issues with banks in Singapore. Banks ceased
doing businesses with cryptocurrencies operators and arbitrarily
closed their bank accounts.32
Speculators believed that this was due to concerns surrounding
money laundering and terrorism financing, especially due to
increasing initial coin offerings by cryptocurrency businesses,
equivalent to initial public offerings in the crypto industry.33 However, to help boost its fintech
economy, in 2018, MAS agreed to help crypto businesses set up bank
accounts in Singapore by strengthening crypto regulatory regime.34 As MAS started taking measures to
regulate the cryptocurrency industry, few banks have started
allowing bank accounts to be opened by crypto businesses. For
instance, Luno, a cryptocurrency exchange which halted its
activities in 2017 owing to closure of its bank accounts, resumed
operations in Singapore towards the end of 2019 after its bank
accounts were opened.35 Having
said that, the woes of crypto businesses are far from over. Banking
continues to remain a challenge and different banks have different
approaches. Businesses are subjected to extensive diligence before
they are offered bank accounts, and many banks will outright
decline such privilege to companies that have any touch points with
cryptocurrency.
(2) Increased regulatory powers with MAS: The
proposed Omnibus Act gives MAS broad powers to issue prohibition
orders against crypto businesses and provides a high penalty for
breach technology risk management requirements. The enhanced
regulatory powers with MAS may be a cause for concern for crypto
businesses and especially start-ups looking for a more flexible
penalty regime.
(3) Regulation of overseas crypto-firms: The biggest
change being proposed under the Omnibus Act is the regulation of
overseas crypto businesses. This implies that virtual asset service
providers will have to ensure that their overseas operations meet
the same regulatory standards as their Singapore operations.36
Opportunities
(1) Crypto-friendly attitude: Singapore’s
crypto-friendly attitude and flexible regulatory offers an
environment to facilitate growth and innovation in the fintech
industry. MAS has been supportive of crypto start-ups and firms
experimenting with cryptocurrency and blockchain technologies. This
friendly climate has been a magnet for several big crypto
businesses from countries like Australia, Japan and China setting
shop in Singapore.37
(2) Regulatory clarity and certainty: Stakeholders from
the cryptocurrency industry welcomed some of the regulatory changes
brought 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 a
MAS license, which offers regulatory clarity and certainty to
crypto businesses operating in Singapore.38
(3) Increased consumer confidence in licensed
crypto-operators: The licensing regime under the PSA will help
increase consumer confidence in the crypto businesses operating in
Singapore. Consumers will also be more comfortable in trusting
licensed crypto operators.
(4) Improved access to banking services: The
new licensing regime under the PSA will facilitate easier access to
traditional banking services to crypto businesses. In fact, the
Association of Cryptocurrency Enterprises and Start-ups recently
released a Code of Practice , under its Standardization of Practice
in Crypto Entities (SPICE) initiative, with support from the
Association of Banks in Singapore and the MAS to help crypto
businesses apply for a license under the PSA.39 These measures will lead to
increased trust between crypto businesses and banks in Singapore,
and improve their access to banking services.
(5) New AML/CFT provisions reduce risk of financial
crimes: The AML/CFT provisions under the PSA reduces the risk
of financial crimes which can take place on a crypto platform. The
Code of Practice released by the Association of Cryptocurrency
Enterprises and Start-ups also seeks to help crypto businesses put
in place robust AML/CFT measures. The Code also promotes best
practices, including Know-Your-Customer, to help crypto businesses
comply with the new regulatory framework.40 While the regulatory regime is
risk-focused, it also offers a flexible framework for crypto-firms
to continue their businesses.
Footnotes
1. Bitcoin.com, No strong
case 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 of
Singapore, Reply to Parliamentary Question on regulation of crypto
derivatives 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 Singapore
is 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 to
Regulatory 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 Cryptocurrency
and 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 & Jodephine
Law, 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 Services
Act, 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, Payment
Services Act, supra note 12.
11. Section 6, Payment Services
Act, 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 of
Singapore, 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 and
Futures Act, 2001, https://sso.agc.gov.sg/Act/SFA2001.
16. Id.
17. As defined under Section
2(1) SFA, this includes: (a) debentures or stocks issued or
proposed to be issued by a government; (b) debentures, stocks or
shares issued or proposed to be issued by a corporation or body
unincorporated; (c) any right, option or derivative in respect of
any such debentures, stocks or shares; (d) any right under a
contract for differences or under any other contract the purpose or
pretended purpose of which is to secure a profit or avoid a loss by
reference to fluctuations in – (i) the value or price of any such
debentures, stocks or shares; (ii) the value or price of any group
of any such debentures, stocks or shares; or (iii) an index of any
such debentures, stocks or shares; (e) any unit in a collective
investment scheme; (f) any unit in a business trust; (g) any
derivative of a unit in a business trust; or (h) such other product
or class of products as the Authority may
prescribe.
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 note
19.
20. Section 6, Securities and
Futures Act, supra note 20.
21. Monetary Authority of
Singapore, A Guide to Digital Token Offerings, supra note
18, at 2.8.
22. Section 82, Securities and
Futures Act, supra note 19.
23. Section 99, Securities and
Futures Act, supra note 19.
24. Blockchain News, MAS
proposes new regulations to tighten crypto business
activities, 22 July, 2020, https://blockchain.news/news/mas-proposes-new-regulations-tighten-crypto-business-activities.
25. Monetary Authority of
Singapore, Consultation Paper on a New Omnibus Act for the
Financial 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 for
the Financial Sector).
26. Id.
27. Id. at
6.
28. MAS, Consultation Paper
on a New Omnibus Act for the Financial Sector, supra
note 29, at 10.
29. Id. at
18.
30. Id.
31. Id. at
19.
32. Bitcoin.com,
Singapore-based Bitcoin Startups Deal with Bank Account
Closures, September 26, 2017, https://news.bitcoin.com/singapore-based-bitcoin-startups-deal-with-bank-account-closures/.
33. Id.
34. The Star, Singapore will
help 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 accounts
open, November 1, 2019, https://www.businesstimes.com.sg/banking-finance/crypto-firm-luno-plans-singapore-reboot-after-bank-accounts-opened.
36. Coindesk, Singapore may
extend crypto regulation to include overseas activities, 21
July 2020, https://www.coindesk.com/singapore-mas-considers-extending-crypto-regulation-overseas-activities.
37. Lottie Wells, Why
Singapore 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 Singapore
Law 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 out
Code of Practice to facilitate application of payment service
provider 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 for
crypto companies, August 14, 2020, https://www.coindesk.com/singapores-central-bank-backs-new-code-of-practice-for-crypto-companies.
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