Overview of Regulatory Regime in Singapore

Singapore is widely viewed as fintech hub that strategically aims at becoming Smart Financial Centre and the first Smart Nation. Singapore is the 3rd largest ICO market in the world.

The Monetary Authority of Singapore (MAS) supervises the conduct of business in relation to various finance activities. MAS also supports the development of fintech ecosystem by various initiatives such as: Fintech and Innovation Group (FTIG) (responsible for formulating regulatory policies), Financial Sector Technology and Innovation Scheme (FSTI) and others.

Singapore is the early advocate of blockchain technology and crypto. In October 2017, Deputy Prime Minister stressed that “MAS does not and cannot regulate all products that people put their money in thinking that they will appreciate in value”. It means that Singapore will let the crypto market grow with minimal intervention, provided that the market does not qualify as regulated market and, hence, falls under existing financial markets and securities regulations.

There is no specific regulation or guidelines in relation to use of distributed ledger technology in Singapore so far. MAS does not regulate virtual currencies per se, it regulates activities involving the use of virtual currencies that fall under MAS’s regulatory ambit.

Crowdfunding and ICOs

There is also no specific regulation applicable to crowdfunding. Fundraising from the public through equity-based crowdfunding is regulated by the MAS under the Securities and Futures Act (SFA) and the Financial Advisers Act (FAA). Therefore, such activity might constitute a regulated activity that requires a licence, but much will depend on the precise business model. The SFA and the FAA contain extraterritorial rules of licensing provisions and can be applied to entities which carry out their activity wholly outside Singapore (or partially in and partially outside Singapore) if such activities would have substantial or reasonably foreseeable effect in Singapore.

In August 2017, MAS issued a statement confirming that offer or issue of digital tokens in Singapore will be regulated by MAS, if the digital tokens fall within the definition of “securities” regulated under the security laws.

In November 2017, MAS issued the Guide on Digital Token Offerings (the Guide). In the Guide MAS reinforce its position that offers or issues of digital tokens may be regulated by MAS if digital tokens are capital markets products under the SFA. In the Guide MAS observed that one or more of the following types of intermediaries typically facilitate digital tokens offers or issues of digital tokens:

  • a person who operates a platform on which one or more offerors of digital tokens may make primary offers or issues of digital tokens (“primary platform”);
  • a person who provides financial advice in respect of any digital tokens;
  • a person who operates a platform at which digital tokens are traded (“trading platform”).

A person who operates a primary platform in Singapore in relation to digital tokens which constitute any type of capital markets products must hold a capital markets services licence for that regulated activity, unless otherwise exempted.

A person who provides any financial advice in Singapore in respect of any digital token that is an investment product, must be authorised to do so in respect of that type of financial advisory service by a financial adviser’s licence, or be an exempt financial adviser.

A company which establishes or operates a trading platform in Singapore in relation to digital tokens which constitute securities or futures contracts is subject to approval by MAS as an approved exchange (AE) or recognised by MAS as a recognised market operator (RMO) under the SFA. In May 2018, MAS issued Consultation Paper “Review of the Recognized Market Operator Regime”, where MAS has recognized the emergence of new business models in trading platforms, including trading facilities that make use of blockchain technology, or platforms that allow peer-to-peer trading without the involvement of intermediaries and confirm its reviewing the regulatory framework for market operators to ensure that it continues to meet the demands of the changing landscape. To this end, MAS is proposing to expand the current RMO regime from a single tier to three separate tiers that would better match regulatory requirements to the risks posed by different types of market operators.

Fintech regulatory sandbox

In November 2016, MAS published guidelines on the regulatory sandbox (which is designed to include crypto business). Any firm that is looking to apply technology in an innovative way or to provide new financial services that are or are likely to be regulated by MAS can apply for the regulatory sandbox. Fintech businesses may enjoy, if they qualify, sandbox regime such as relaxation of specific legal and regulatory requirements under control of the MAS. The period of time is limited and usually does not exceed three months. MAS expects that interested firms would have done their due diligence, such as testing the proposed financial service in a laboratory environment and knowing the legal and regulatory requirements for deploying the proposed financial service, prior to submitting an application. There are no administrate charges for submitting a sandbox application. However, in practice MAS charges fees. At the end of the sandbox period, the legal and regulatory requirements relaxed by MAS will expire, and the sandbox entity must exit from the sandbox. In the event that the sandbox entity requires an extension of the sandbox period, the sandbox entity should apply to MAS at least 1 month before the expiration of the sandbox period and provide reasons to support the application for extension. MAS will review the application and approval will be granted on a case-by-case basis. MAS’ decision on the application for extension is final.

Proposed crypto-specific regulation

In November 2017, MAS issued a consultation paper proposing the Payment Services Bill (the Bill). The Bill will expand the scope of regulated payment activities to include virtual currency services. Companies carrying out virtual currency services including buying or selling virtual currency would be required to be licensed.

Virtual currency is defined as any digital representation of value that is not denominated in any fiat currency and is accepted by the public as a medium of exchange, to pay for goods or services, or discharge a debt. MAS will introduce AML/CFT requirements to be imposed on virtual currency intermediaries that deal in or facilitate the exchange of virtual currencies for real currencies:

(i) dealing in virtual currency, which is the buying or selling virtual currency. This involves the exchange of virtual currency for fiat currency (e.g. Bitcoin for USD, or USD for Ether) or another virtual currency (e.g. Bitcoin for Ether); and

(ii) facilitating the exchange of virtual currency. This involves establishing or operating a virtual currency exchange where participants of the exchange may use such a platform to exchange or trade virtual currency.

The virtual currency service provider must process funds or virtual currency. The Bill proposes to introduce the licencing framework for the payment service licence holders engaged in funds or virtual currency processing activity provided that operations model envisioned the acceptance of funds or virtual currency into possession. Thus, business model of every virtual currency service provider will need to analyzed on case-by-case basis to determine to which extent these requirements would be applicable to such virtual currency service provider. The Bill has not been proposed to Singapore lawmaker yet and it may take time until it is finally introduced.