Singapore has emerged as the global centre for blockchain and cryptocurrency technology in recent years. From the outset, the Monetary Authority of Singapore (MAS) has been taking a proactive approach in regulating the crypto industry in Singapore while balancing commercial realities.
The Singapore stance
The MAS is engaged in a delicate balancing act between being in favour of regulating the cryptocurrency ecosystem in order to keep an eye out for any risks associated with crypto-related activities, such as money laundering, and constantly monitoring to make sure that the regulations do not impede commercial enterprise and innovation. The goal here is to provide a stable legal and regulatory framework for cryptocurrencies.
Singapore’s position can be summarised as follows: Being well aware of the potential benefits, while remaining vigilant against emerging risks of blockchain and cryptocurrencies. Accordingly, the MAS has undertaken a multi-pronged approach which includes: (a) regulating cryptocurrency exchanges present in Singapore; (b) educating the public and investors about the dangers of buying crypto tokens (that are not sanctioned by the MAS); and (c) launching pilot projects with blockchain technology for certain transactions such as inter-bank payments (under the auspices of the MAS).
Payment Services Act 2019
The Payment Services Act (PSA), which governs both conventional and cryptocurrency exchanges, went into force in January 2020. The purpose of the PSA was to unify payment services under an omnibus law and establish a modular regulatory framework that would allow rules to be adjusted in accordance with the risks that these activities present. Furthermore, the PSA sets out anti money laundering (AML) obligations that cryptocurrency operators must adhere to and also offers a framework for obtaining a license to run a crypto-related business in Singapore.
Below, we go through a few pertinent provisions:
Unless an exception applies, any business providing a digital payment token service must get a payment institution license. For businesses with monthly payment transactions under S$3 million, a regular payment institution license is required, while for businesses with monthly payment transactions above S$3 million, a major payment institution license is required.
A firm applying for any of these licenses must be: (a) a company incorporated in Singapore or overseas; (b) have a permanent place of business in Singapore or a registered office in Singapore; and (c) the applicant must have at least 1 executive director who is a Singapore citizen, Permanent Resident or a person belonging to a class of persons prescribed by the MAS.
Digital Payment Token
A digital payment token (DPT) is any cryptographically secured digital representation of value that is used or intended to be used as a medium of exchange, that is cryptocurrency. Examples of digital payment tokens are Bitcoin, Ether, Litecoin and Monero. A DPT must satisfy the following requirements under the PSA: (a) is expressed as a unit; (b) is not denominated in and is not pegged to any currency by its issuer; (c) is, or is intended to be, a medium of exchange accepted by the general public; (d) can be transferred, stored or traded electronically; and (e) fulfils any other requirements that MAS may prescribe from time to time.
AML / Countering the financing of terrorism (CFT)
DPT service providers must adhere to and comply with AML/CFT requirements issued by the MAS in the Notices on Prevention of Money Laundering and Countering the Financing of Terrorism, and Notice on Reporting of Suspicious Activities & Incidents of Fraud.
Briefly, the Notices mandate that DPT service providers have effective procedures to identify and prevent money laundering and funding of terrorism. As part of their internal AML/CFT policy, all DPT payment service providers are required to put in place a number of precautionary measures, including customer due diligence, monitoring transactions for money laundering, screening customers against sanctions lists, and implementing a process for reporting suspicious transactions.
Securities and Futures Act 2001
The Securities and Futures Act (SFA) is applicable for public offerings or issues of digital tokens where such digital tokens are construed as capital market products. A digital token can be classified as a capital market product in accordance with the guidelines set out in the Guide to Digital Token Offerings (the Guide). Capital market products, as defined in the SFA and the Guide include securities, units in a collective investment scheme, derivatives contracts and spot foreign exchange contracts for purposes of leveraged foreign exchange trading. The MAS will examine the digital token and determine the nature of the digital token based on the characteristics and the rights attached to such digital tokens. Where such tokens are determined to be capital market products, the SFA will apply.
In the event, where the SFA applies to any offering of a digital token, the following requirements may come into play as well:
Unless exempted, any offer of digital tokens to the public which constitutes capital market products (as defined in the SFA), must comply with all the relevant requirements under the SFA, which includes without limitation, (a) the preparation of a prospectus; and (b) as a means of registration or the lodging of the offer (and the prospectus) with the MAS.
An offer may be exempted from these aforementioned requirements if: (a) the offer does not exceed S$5 million within any 12-month period; (b) the offer is a private placement (made to less than or equal to 50 persons within any 12-month period); and/or (c) the offer is made only to accredited or institutional investors.
Capital Market Services license
Under the SFA, running a primary platform in Singapore for digital tokens that qualify as capital market products is seen as engaging in a regulated activity. Primary platforms are those on which one or more digital token offerors may make initial digital token offers or issues.
A capital market services (CMS) license is necessary for any person operating a firm in any of the SFA’s regulated activities. The MAS’s minimum financial and other standards must be met by the applicant, which must be a company, in order for the license to be issued. The SFA also offers a few exceptions from the requirement to possess a license for capital markets services.
Recognised Market Operators and Approved Exchanges
A market may only be created or run by a recognised market operator, licensed exchange, or both. Digital tokens are often issued via primary platforms. An operator of a primary platform is mandated to obtain a license from the MAS.
The current state of legislative regime in relation to crypto and blockchain is in flux. Singapore has largely taken a risk-based approach, essentially regulating activities where there is known downside and systemic impact. The focus here is to safeguard Singaporeans from parties that might raise the risk involved with cryptocurrency businesses, reduce the potential impact on Singapore’s financial stability, and to crack down on financial crime in the ecosystem.
Saravanan Rathakrishnan is an associate of RHTLaw Asia's Corporate and Capital Markets Practice. Funds, capital markets, mergers and acquisitions are among his areas of expertise. Saravanan is engaged in the startup community, consulting a variety of startups in relation to contract terms, regulatory obligations, legal commitments and corporate structure. He maintains a keen interest in finance, economics, and law and has published a host of legal, economic and finance articles.