Singapore:Singapore: Regulating the Cryptocurrency Industry
In recent years, Singapore has become a global hub for cryptocurrencies, initial coin offerings and blockchain technologies. It thus comes as no surprise that the Monetary Authority of Singapore (“MAS”) has implemented legislation to regulate the cryptocurrency industry and continues to do so.
(1) Payment Services Act (“PSA”)
On 28 January 2020, the PSA came into effect to regulate both traditional and digital payment token-based payments. The MAS Notice PSN02 (Prevention of Money Laundering and Countering the Financing of Terrorism – Digital Payment Token Service) also came into effect on the same day, putting in place robust AML/CFT controls to detect and stop the illegal flow of funds through Singapore via digital payment token (“DPT“) activities.
On 4th January 2021, MAS introduced further amendments to the PSA to keep up with changes to international standards and to better mitigate the money laundering and terrorism financing risks related to DPTs. With the new amendments, the definition of DPT service providers was broadened to include:
(a) Transfer of DPTs;
(b) Providing custodial wallet services for DPTs; and
(c) Facilitating the exchange of DPTs without possession of money or DPTs by the DPT service provider.
Further, the amended PSA now grants MAS powers to regulate DPT service providers, such as requiring them to ensure safekeeping of customer assets and to implement any other measures which may be necessary or expedient in the interest of the public.
(2) Securities and Futures Act (“SFA”)
The SFA also applies to DPTs if they constitute capital market products. Under the SFA, capital market products are defined to include securities, units in a collective investment scheme, derivatives contracts and spot foreign exchange contracts for purposes of leveraged foreign exchange trading.
Any offer of DPTs which constitutes capital market products will require the preparation of a prospectus in accordance with the SFA and registration of the offer with MAS.
Entities seeking to establish or operate a DPT exchange are often also required to be licensed as an approved exchange and/or a capital market services licence holder.
(3) Proposed Omnibus Act (“OA”)
In July 2020, MAS proposed the introduction of the OA to govern the financial sector in Singapore, which includes the cryptocurrency industry. Under the proposed OA, virtual asset service providers (“VASPs”) created in Singapore but offering services outside Singapore will be regulated. VASPs will be required to be licensed and be subject to ongoing requirements such as appointment of a resident executive director, being a Singapore incorporated company and having a permanent place of business in Singapore. VASPs will also be subject to AML/CFT requirements.
A Crypto-friendly Environment
Whilst the industry will see more regulation via the new legislation, Singapore will continue to develop as a hub for the cryptocurrency industry. The Singapore government remains careful not to stifle innovation and continually strives to create a crypto-friendly environment for businesses. As aptly explained by Singapore’s Senior Minister Tharman Shanmugaratnam, Singapore “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.”
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