Singapore — The World’s Fintech Hub

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SN Mentoring

10 min readOct 11, 2023

The past few years have seen global regulators thread the needle by attempting to foster innovation as well as regulate digital assets. The rapid growth in technology has only put these global authorities to the test. Singapore is a country which has been successful in coping with these changes and ensuring consumer safety. Singapore has led the way globally when it comes to crypto regulation.

Well known for its strict laws and rigorous enforcement, Singapore did not follow a similar approach in the case of cryptocurrency. The nation has a balanced attitude towards cryptocurrency. Unlike in other nations such as China, Morocco, Nepal and many more, cryptocurrency has been deeply ingrained in Singapore through various legislations. This allows the legal functioning of cryptocurrency exchanges and various operations. Cryptocurrencies may be legal assets to own but cannot be used as legal tender, i.e., the money authorised by the government to be used as the standard method of payment.

Singapore leads the pack as the top crypto hub across the world in the Crypto Adoption Index by London-based investment migration consultancy Henley & Partners. Singapore has topped the chart because of its government’s close cooperation with all actors — banks, businesses, and the public — for the development of the crypto sector, the report says.

The Rather Content MAS:

The Monetary Authority of Singapore is the central bank of the country. It has been active in the crypto and digital currencies world, in general, since the very beginning. In 2013, when cryptocurrencies started to gather attention, the MAS started cautioning consumers and businesses about the significant risks associated with virtual currency transactions. As Initial Coin Offerings (ICOs) rose in prominence in 2016, the MAS clarified in August 2017 that ICOs must comply with the existing securities laws aimed at safeguarding investors’ interest if a token is structured in the form of securities.

At that time, however, the MAS only exercised authority in such cases to address potential money laundering and terrorist financing risks. In 2017, the anonymous nature of virtual currency transactions made them vulnerable to such risks. Otherwise, it would not regulate virtual currencies per se. Ravi Menon, the current Managing Director of the MAS, said in an interview with Bloomberg, “… as of now, I see no basis for wanting to regulate cryptocurrencies.”

But now, they have moved on due to growing needs and risks in this space.

A Crypto Winter

Despite the industry’s image as being a wild and unpredictable field, crypto founders usually give priority to clear-cut regulations and predictability. Hence, Singapore, the city-state where regulations are neither too strict nor too lax, where the main aim is to protect consumer interest, hosts the headquarters of some major brands. These consist of but are not limited to Binance, Coinbase, Crypto.com and more. However, ever since their very own prides — Terraform Labs and Three Arrows Capital — plunged to the depths of failure, this fintech community has been biding its time. Now it has started to look to the future.

This current state may be called a Crypto Winter. It is a general situation where exchanges and investors alike see continued declines over a period. The declines in a crypto winter are typically over multiple cryptocurrencies and for a period of at least three months.

Despite all this, the nation still commands respect and prominence. According to the 2023 Global Financial Centres Index, Singapore is the most competitive fintech hub in the Asia Pacific region. It remains a regulatory leader in the crypto field. In 2020, the MAS passed the Payment Services License Act. Pamela Lee, head of APAC sales at Talos, developer of institutional-grade technology for digital-asset trading, said: “There were all these companies that were all rushing to Singapore to apply for the license because it was actually the first regulator in the region that had a proper digital-assets licensing framework.”

Since the very beginning, crypto has made its home in Singapore. The positive attitude and absence of capital gains tax influenced many investors to move their assets there. Prakash Somosundram, founder of Enjinstarter, a blockchain-based crowdfunding platform for early crypto projects, described having had a “front-row seat” to the Singaporean crypto scene since 2015. “In the early days, when it came to crypto, from a regulatory perspective, it was very pro.”

The ongoing Crypto Winter aside, Singapore has always attracted the stereotypically brash strain of crypto celebrity culture and lifestyle. That world centred on the wealthy enclave of Sentosa Island, which Somosundram calls “Crypto Island.“ Sentosa is the only place in the city-state where foreigners can own property, and wealthy expats have flooded in. Sentosa’s inhabitants have included Chengpeng “CZ” Zhao, founder and CEO of Binance, as well as crypto thought leader and U.S. investor Balaji Srinivasan. “Back then, crypto meetups, conferences and events were held in villas or even on yachts,” Somosundram said. The island houses a racially and gender-diverse community, which has scaled up its cryptocurrency ecosystem as well. Along with ICOs, Singapore also had one of the earliest Ethereum circles. The plethora of meets and summits sees different fanbases with much curiosity.

A highly educated workforce and institutional fintech know-how have been a potent mix for Singapore. Among the first initial coin offerings (ICO) were Singaporean startups such as cryptocurrency payment platform TenX, which raised $43 million in just seven minutes in 2017. That same year, Singapore’s ICO funding surpassed that of the U.S. with $1.5 billion versus $1.2 billion. This is commendable for a locale that is roughly the landmass of New York City, with just two-thirds of the population.

However, the prevailing situation has forced Singapore on the back foot. The MAS and the crypto investors are more wary than before. The banking sector is doubling down on security measures such as know-your-customer (KYC), anti-money-laundering, and the like. Such cautious manoeuvres may drive the crypto affluent to move to Dubai and Hong Kong, the next best options as other crypto-friendly hot spots. However, the city-nation does not have anything to fear as of now. Despite chatter of the emerging prominence of Dubai and Hong Kong, Singapore remains well ahead of them. It has an even firmer footing in the crypto regulatory space than the world’s top financial hub, New York.

Supervision not Suppression:

As a legal asset, cryptocurrency enjoys a certain freedom in Singapore. The regulations around Bitcoin and even other Digital Payment Tokens are meticulous but open to innovation. The MAS, the central financial regulatory body, has undertaken the task of monitoring risks associated with crypto-related transactions without cracking down on technological innovation.

As such, the Payment Services Act (PSA) was passed in 2019, intending to clear up the legality of cryptocurrencies and their use. Under the PSA, digital currencies are referred to as digital payment tokens (DPTs). This act brought all payment-related services under a single legislation and detailed license and money laundering compliance requirements for cryptocurrency business operators.

Any person/business carrying out DPT-related services must obtain a standard or major payment institution license, applied for by a company that has its registered office in Singapore.
Keep in place a proper internal mechanism to transmit Suspicious Activity Reports (SARs) to the Monetary Authority of Singapore
Obligated entities must check users against sanctions lists, PEPs, and negative media
Obligated companies are required to do KYC checks in order to identify and verify their users.

The Go-to Migration Point

More than 88,200 crypto millionaires all over the world and nearly half hold their riches in Bitcoin. This is what was discovered by the Crypto World Report by investment migration specialists Henley & Partners. The value of the cryptocurrency market has reached an astonishing $1180 billion. And yet, as discussed earlier, a Crypto Winter has arrived. A decline in values and reluctance shown by investors are overshadowing the world. Dr. Juerg Steffen, CEO of Henley & Partners said, “We have seen a significant spike in enquiries from crypto millionaires over the past six months looking to protect themselves against any potential future bans on the trading or use of cryptocurrencies in their own countries and mitigate the risks of aggressive fiscal policies that tax digital assets at source.”

Essentially crypto owners, particularly the ones with more stake, are reading between the lines and looking to safeguard themselves. The current predicament hints towards “potential bans” on cryptocurrencies, even in those nations where they are promoted, as well as any economic policies that may directly attack these virtual assets.

Amidst all this, Singapore emerges as a leader in the field of crypto acquisition and integration. With statistics based on over 750 data points, Henley’s new Crypto Adoption Index assesses and rates crypto-friendly investment migration host countries on the basis of the level of innovation, tax friendliness, economic factors, public adoption and more.

Singapore has come out on top. The government cooperates closely with all actors — banks, businesses, and the public — for the optimal development of the national crypto sector, and the city-state’s crypto taxes are beneficial to individuals and investors alike, with no capital gains taxes. Thus, Singapore is currently leading the pack as the number 1 crypto hub in the world.

Worried Much?

December of 2017 saw a skyrocket in the value of Bitcoin to $20,000 from a mere $1,000 in January 2017. As the public’s interest was piqued in cryptocurrency investments, the MAS remained objective and impressed upon the public to “exercise caution” and understand the significant risks accompanying such investments. The MAS was concerned that the sudden rise in cryptocurrency values was due to much speculation in the market and as such, there remained a high risk of an equally sudden fall in those numbers. They warned the public that there were no precautionary regulations for crypto investments.

Five years later, the world entered a year abounding with scandals. The algorithmic stablecoin TerraUSD collapsed, and major players like crypto lenders Voyager Digital, Celsius Network, and BlockFi faced their downfall. Even crypto hedge fund Three Arrows Capital and the crypto exchange FTX crumbled. In January 2022, the MAS introduced measures to restrict the marketing and advertising of cryptocurrency services in public areas and disallow cryptocurrency trading being portrayed in a manner that trivialises its risks.

On 26 October 2022, a mere fortnight prior to FTX’s filing for bankruptcy on 11 November 2022, the MAS released two consultation papers setting out proposed measures to reduce the risk of consumer harm in cryptocurrency trading (“Consultation Paper on Proposed Regulatory Measures for Digital Payment Token Services”) and to support the development of stablecoins in Singapore’s digital asset ecosystem (“Consultation paper on Proposed Regulatory Approach for Stablecoin-Related Activities”).

Just this year, in July 2023, the Singapore regulator banned crypto exchanges from lending, staking for retail investors. The MAS also announced new requirements for Digital Payment Token (DPT) service providers to protect customer assets under a statutory trust before the end of the year. This has been done so as to mitigate the risk of loss or misuse of customers’ assets and facilitate the recovery of customers’ assets in the event of a DPT service provider’s insolvency. MAS will also restrict DPT service providers from facilitating their retail customers’ lending and staking of DPT tokens.

The Age of the Stablecoin:

On 15 August 2023, Singapore’s financial regulator revealed that it had finalized rules for a type of digital currency called stablecoin, putting it among the first jurisdictions globally to do so.

A stablecoin is a type of cryptocurrency where the value of the digital asset is supposed to be pegged to a reference asset, which is either fiat money, exchange-traded commodities (such as precious metals or industrial metals), or another cryptocurrency. They may also be backed by real-world assets like cash or government securities.

The stablecoin market has a value of nearly $125 billion with two tokens — Tether’s USDT and Circle’s USDC — commanding around 90% of this value. However, the market remains unregulated by and large. To tackle this, the MAS framework spells out some key requirements:

Reserves that back stablecoins must be held in low-risk and highly liquid assets. They must equal or exceed the value of the stablecoin in circulation at all times
Stablecoin issuers must return the par value of the digital currency to holders within five business days of a redemption request
Issuers must also provide “appropriate disclosures” to users, including the audit results of reserves.

These rules will apply to stablecoins issued in Singapore and mimic the value of the Singapore dollar, or of any G10 currency, such as the U.S. dollar. Stablecoins that fulfil all of the requirements under the rules will be recognized by the regulator as “MAS-regulated stablecoins.” This will distinguish stablecoins from tokens that are not regulated, MAS said.

“MAS’ stablecoin regulatory framework aims to facilitate the use of stablecoins as a credible digital medium of exchange, and as a bridge between the fiat and digital asset ecosystems,” Ho Hern Shin, deputy managing director of financial supervision at MAS, said in a statement.

A benefit will be that consumers would be more willing to invest in regulated coins rather than unregulated tokens. Moreover, normal money can start to take a back seat as such forms of digital currency assets find their place. Singapore’s stablecoin framework puts it among one of the first jurisdictions to have such rules.

Conclusion:

Singapore has led the way globally when it comes to crypto regulation. Ever since the trend began, Singapore has sought to position itself as a digital currency hub. The Singapore Government has adopted a pragmatic, cautious and tailored approach toward dealing with cryptocurrencies. The nation recognises the economic and social potential of cryptocurrency and seeks to foster a conducive regulatory environment for its adoption within Singapore’s financial landscape, yet strives to account for consumer protection and security.

REFERENCES:

Singapore — The World’s Fintech Hub

Written by Vihaan Bakshi