Regulation of Cryptocurrency and Initial Coin Offerings (ICOs) in Singapore
Following an increase in the number of ICOs in Singapore, the Monetary Authority of Singapore (MAS) issued a media release in August 2017 on the regulation of digital token offerings. In November 2017, MAS issued a guide  to the application of Singapore securities laws to offers or issues of digital tokens. It noted that offers or issues of digital tokens in Singapore may be regulated by the MAS if the digital token is a type of capital markets product under the Securities and Futures Act (Cap. 289) (the SFA). Capital markets products include securities, futures contracts, and contracts or arrangements for the purposes of foreign exchange trading or leveraged foreign exchange trading.
In March 2014, MAS stated that it does not regulate virtual currencies per se as these are not considered to be securities or legal tender, but does regulate virtual currency intermediaries in relation to money laundering and terrorist financing risks requiring them to identify customers and report suspicious transactions . It has since reiterated that position, but noted that it regards virtual currencies as those used as “a medium of exchange, a unit of account or a store of value” examples of which include Bitcoin, Ether and Litecoin . The MAS has however noted that the function of some digital tokens has developed beyond being solely a virtual currency and its November statement makes clear that digital tokens may constitute:
- shares where they represent ownership in a corporation, liability of the token holder in the corporation and mutual covenants with other token holders in the corporation inter se;
- a debenture, where they constitute or evidence the indebtedness of the issuer of the digital token in respect of money lent to the issuer by a token holder; or
- units in a collective investment scheme (CIS) where they represent a right or interest in a CIS, or an option to acquire such a right or interest.
Where digital tokens constitute securities or units in a CIS, they must be offered in compliance with the prospectus requirements of the SFA and an offer in relation to units in a CIS may be subject to authorisation and recognition requirements. A person operating a platform in Singapore on which primary offers or issues of digital tokens are made may need to be licensed for one or more regulated activities under the SFA (unless exempt). Persons providing financial advice in Singapore in relation to any digital token that is an investment product must be authorised under the Financial Advisers Act (Cap. 110) (unless exempted).
A person who establishes or operates a trading platform for digital tokens which constitute securities or futures contracts in Singapore, may be establishing or operating a market which requires approval by MAS as an approved exchange or recognition by MAS as a recognised market operator under the SFA, unless exempted.
On 24 May 2018, MAS warned eight digital token exchanges in Singapore not to facilitate trading in digital tokens that are securities or futures contracts without MAS’ authorisation. It also warned an ICO issuer to stop the offering of its digital tokens in Singapore .
The Singaporean authorities have been concerned that ICOs are susceptible to AML/CTF risks given their anonymous nature. The MAS is currently consulting  on new regulation which will regulate both e-money (which is denominated in fiat currency) and virtual currencies. The proposed definitions are as follows:
- “E-money” will be defined as electronically stored monetary value that represents a claim on the e-money issuer that has been paid in advance for the purpose of making payment transactions through the use of a payment account and is accepted by another person other than the e-money issuer. A consumer purchases e-money from a business to allow him to transfer money to participating individuals or to purchase goods or services from merchants who accept such e-money;
- “Virtual currencies” will be defined as any digital representation of value that is:
- not denominated in fiat currency;
- is accepted by the public as a medium of exchange, to pay for goods or services, or discharge a debt; and
- can be transferred, stored or traded electronically.
The MAS is proposing to combine the existing Payment Systems (Oversight) Act (Cap. 222A) and the Money-Changing and Remittance Business Act (Cap. 187). The key proposals would:
- introduce a single payment services licence to regulate existing and new payment services;
- implement a regulatory structure for significant payment systems and retail payment services; and
- address regulatory risks and concerns.
The proposed Payment Services Bill would adopt an activity-based approach and govern activities that: (i) face either customers or merchants; or (ii) process funds or acquire transactions. The proposed regulated activities include: (a) account issuance services which would cover issuing or operating an e-wallet or a non-bank credit card; (b) e-money issuance allowing the user to pay merchants or transfer e-money to another individual; and (c) virtual currency services including buying or selling virtual currency or providing a platform to allow persons to exchange virtual currency.
AML/CTF obligations would be imposed on virtual currency intermediaries which:
- deal in virtual currencies – i.e. buy and sell virtual currencies which involves exchanging virtual currency for fiat currency or another virtual currency; and/or
- facilitate the exchange of virtual currency. This would include establishing or operating a virtual currency exchange allowing participants to use the platform to exchange or trade virtual currencies.
The new requirements would apply to virtual currency service providers that process funds or virtual currency. The AML/CTF requirements would include identifying and verifying customer and beneficial owner identity, screening for AML and CTF concerns, suspicious transaction reporting, ongoing monitoring and record keeping.
The new ordinance would not however apply to regulated financial service providers, in-game assets and loyalty-points that are not denominated in fiat currency.F
Note: The above represents Charltons’ current understanding of the regulation of ICOs in different jurisdictions. Charltons advises only on Hong Kong law and while the above represents our understanding of the legal position in certain other jurisdictions, legal advice from qualified lawyers in the relevant jurisdictions should be sought in relation to any particular transaction or situation. Further, this note is intended for educational purposes and it does not constitute Hong Kong legal advice. Specific advice must be sought in relation to any particular situation.
- Monetary Authority of Singapore. “A Guide to Digital Token Offerings”. <http://www.mas.gov.sg/~/media/MAS/Regulations%20and%20Financial%20Stability/Regulations%20Guidance%20and%20Licensing/Securities%20Futures%20and%20Fund%20Management/Regulations%20Guidance%20and%20Licensing/Guidelines/A%20Guide%20to%20Digital%20Token%20Offerings%20%2014%20Nov%202017.pdf>
- MAS. “MAS to Regulate Virtual Currency Intermediaries for Money Laundering and Terrorist Financing Risks.” 13 March 2014. <http://www.mas.gov.sg/news-and-publications/media-releases/2014/mas-to-regulate-virtual-currency- intermediaries-for-money-laundering-and-terrorist-financing-risks.aspx>
- MAS. “MAS Cautions Against Investments in Cryptocurrencies”. 19 December 2017. <http://www.mas.gov.sg/News-and-Publications/Media-Releases/2017/MAS-cautions-against-investments-in-cryptocurrencies.aspx>
- MAS. “MAS warns Digital Token Exchanges and ICO Issuer”. 24 May 2018. <http://www.mas.gov.sg/News-and-Publications/Media-Releases/2018/MAS-warns-Digital-Token-Exchanges-and-ICO-Issuer.aspx>
- Monetary Authority of Singapore. “Consultation Paper – Proposed Payment Services Bill”. November 2017. <http://www.mas.gov.sg/~/media/resource/publications/consult_papers/2017/Consultation%20on%20Proposed%20Payment%20Services%20Bill%20MAS%20P0212017.pdf>