Crypto regulations in Singapore

Singapore has become one of the pioneers in opening up its doors to the cryptocurrency industry and its regulation, while achieving a proper balance between promoting innovation and having strong investor protection. At the core of the regulatory regime in Singapore is the Monetary Authority of Singapore , supervising and formulating policies to keep pace with the city-state’s pledge for technological progress.

Among other elements related to cryptocurrency regulations, Singapore has adopted the Payment Services Act (PSA), which came into effect in January 2020. Under the PSA, digital payment token services (such as for cryptocurrency exchanges) are obliged to apply for registration and comply with imposed requirements set out by relevant AML and CTF legislation. The catch-all legislation hence lays out a clear licensing regime that makes sure digital payment tokens are secure, protects consumer interests, and provides further clarity of the route forward for market participants.

Also, cryptocurrency exchanges and wallet providers, being the innate services which come into play within the vibrant crypto environment of Singapore, have to apply for licenses under the PSA. The licensing regime has introduced rigorous measures aimed at protecting users and preserving the integrity of the financial system.

CRYPTO REGULATION IN SINGAPORE

Singapore has then reiterated its commitment in the fight against illicit activities in the crypto space by focusing on AML and CTF, which has become varied. All crypto-related activities would be required to undertake continuous customer due diligence, monitor their transactions, and report any suspicious activity without delay.

Added to that, the factor of Singaporean taxation policy contributes even more to making it attractive for crypto businesses. As of my knowledge cutoff in January 2022, digital payment tokens were exempt from goods and services tax, thus providing more lucrative conditions for businesses operating in the crypto sector.

Innovation is encouraged by the regulatory approach of Singapore. Many initiatives, such as the Financial Sector Technology and Innovation scheme, show that the country provides financing for projects with a view to enhance the competitiveness of its financial sector.

Its proactive attitude and regulatory clarity have garnered international recognition to date, making Singapore one of the more desirable jurisdictions where cryptocurrency businesses can set up shop. Considering the ever-evolving nature of regulations in this space, stakeholders are well advised to keep themselves informed of the updates to remain compliant with the latest legal position. In summary, Singapore’s crypto regulation effectively balances encouraging innovation while protecting the integrity of its financial ecosystem.

Advantages

The regulation of cryptocurrency in Singapore is done through a proactive and forward-looking regime, hence making the city-state a leading international financial center in creating an environment that nurtures blockchain and digital currency innovation. Salient features of crypto regulations in Singapore include:

Monetary Authority of Singapore: As the central regulator in Singapore, MAS plays a crucial role in achieving and developing crypto regulation. By nature, its approach will involve support for technological development and financial stability, protection of investors, and more.

Payment Services Act: The PSA is one of the foundational crypto regulations in Singapore, coming into force in January 2020. It brings different payment services, including digital payment token services related to cryptocurrency exchanges, under the regulatory ambit. The PSA sets out a clear licensing regime that ensures compliance with AML and CTF regulations.

The PSA has imposed a licensing requirement on the cryptocurrency exchanges and wallet providers. The licensing regime prescribes stern measures concerning security regarding digital payment tokens and consumer protection in a bid to lend credence and security to the crypto industry.

AML/CTF Policy: All crypto-related business activities must be fully compliant with stringent AML and CTF measures. This will involve proper customer due diligence, monitoring of transactions, and filing of suspicious activity reports as warranted in a timely manner.

Taxation Policies: Singapore has favorable taxation policies that make it a very attractive destination for crypto enterprises. Digital payment tokens are not charged the GST, hence giving it the much-needed tax certainty and encouraging businesses involved in the crypto sector.

Supporting Innovation: The country encourages innovations to be developed around blockchain and fintech, with initiatives such as the FSTI scheme. This scheme provides funding to projects that are capable of enhancing the competitiveness of Singapore’s financial sector.

Global Recognition: The regulatory approach of Singapore has earned it global recognition as it attracted both local and international players in the crypto space. Indeed, commitment to regulatory clarity and innovation-friendly policies finally established the city-state among one of the best destinations for cryptocurrency businesses.

Ongoing Evolution: Regulatory development in Singapore is ongoing-a reflection of the dynamic nature of crypto business. All stakeholders will be advised to stay properly updated with regulations and amendments to these regulations to sustain compliance on an ongoing basis with the legal obligation of the day.

Republic of Singapore

Capital	Population	Currency	GDP
Singapore	5.454 million	SGD	$397 billion

The regulatory regime of cryptocurrencies in Singapore is essentially provided by the Payment Services Act. Generally, the PSA qualifies or categorizes cryptocurrencies as regulated or unregulated per attributes and features. Certain cryptocurrencies may fall absolutely outside the purview of the PSA, whereas some might be placed under the purview of Singapore’s Securities and Futures Act 2001 if their nature approximates to a capital markets product or security.

As there are a number of regulatory implications that the Singapore law governs with regards to any activity involving cryptocurrencies, it is important that a person seek legal advice in terms of Singapore law before attempting any activities within Singapore that relate to cryptocurrencies.

CRYPTOCURRENCY REGULATION

Businesses offering payment services, such as cryptocurrency exchanges, have to hold a payment license under the PSA. The PSA defined seven basic types of payment services: an account issuance service, an e-money issuance service, a cross-border money transfer service, a domestic money transfer service, a merchant acquisition service, a DPT service, and a money-changing service.

It might be a cryptocurrency that falls within the meaning of either “e-money” or “digital payment token.” It needs a license under the PSA for one to provide payment services using such cryptocurrency. “E-money” refers to any monetary value stored electronically that is used to pay for a payment transaction. “Digital payment token” refers to a digital representation of value in electronic or digital form which is hereby stated to be a medium of exchange and is widely accepted by the public without any limitation.

A DPT service could be dealing in DPTs or acting as an intermediary for exchanging DPTs. Dealing in DPT means purchasing and selling of DPTs in exchange for money or other DPTs, while acting as an intermediary for exchanging DPTs involves operating a digital payment token exchange.

Given that certain cryptocurrencies meet the definition of limited purpose DPT, these will not be regulated under the PSA. In general, a limited purpose DPT includes a non-monetary customer loyalty or reward point, in-game asset, or a similar digital representation with specific uses.

In fact, there are two types of licenses under the PSA: a standard payment institution license and a major payment institution license; the latter applies if the total value of the payment transactions exceeds specified thresholds.

In respect of licensees that provide e-money issuance services, a major payment institution license would be required on the basis of thresholds regarding the total value of e-money stored in the payment accounts. This licensing obligation is part of the overall regulatory regime in Singapore with respect to the dynamic landscape of cryptocurrencies.

The pre-requisites to be satisfied for the application for a license and ongoing requirements to ensure compliance for the license are put out under the PSA. Eligibility criteria include a base capital minimum of S$100,000 for a standard payment institution license and S$250,000 for a major payment institution license. The important requirement is the need for an executive director who must be a Singapore Citizen or Permanent Resident, or, in the alternative, one non-executive director must be a Singapore citizen or Permanent Resident, plus an executive director holding a Singapore employment pass. Apart from that, the applicant of a license should have its permanently located place of business or registered office in Singapore; it should be the address where records of transactions in respect of the payment services provided are kept.

Also, a payment institution shall also appoint at least one representative at its place of business or registered office to deal with enquiries or complaints. A major payment institution shall also be required to lodge a security amount with the MAS, although recent amendments provide that the MAS may prescribe additional classes of licensees to which such requirement applies to standard payment institutions.

Under the SFA, cryptocurrencies can also have attributes of any of the traditional capital markets products, including securities, units in a collective investment scheme, derivatives contracts, and spot foreign exchange contracts for the purposes of leveraged foreign exchange trading. The application of conventional requirements to such cryptocurrencies would depend on the type of activity involved. For instance, a dealing in cryptocurrencies that are capital markets products should be undertaken under a capital markets services license, while an offer of cryptocurrencies that is a security has to be made with the preparation and filing with MAS of a prospectus.

In the event that such cryptocurrencies have asset-backed features, trading activities may involve licensable activities under the Commodity Trading Act 1992 if the trading constitutes spot commodity trading. Generally, cryptocurrencies with features of regulated products in Singapore are not banned; however, the applicable laws must be complied with. Parties can engage in activities relating to cryptocurrencies without falling within regulated product features, which activities are unrestricted, subject to adherence to general laws of Singapore.

MAS is therefore proactive in updating Singapore’s regulations to adapt to the changing global cryptocurrency landscape, considering associated risks and opportunities. In this respect, MAS has issued a consultation paper dated 3 July 2023, inviting feedback from the public on proposed amendments to the Payment Services Regulations 2019. The regulations would make it mandatory for the DPT service providers to hold the assets of their customers in a statutory trust and to prohibit lending and staking of DPT tokens through them by retail customers. The aim would be improving the protection of customer assets and eliminating unfair trading practices on the part of DPT service providers.

SALES REGULATION

Whether sale of cryptocurrency will be regulated depends upon whether the cryptocurrencies represent products subject to the regulation of PSA or SFA. If a cryptocurrency is considered a security, securities-based derivatives contract, or unit in a collective investment scheme, an offer of that cryptocurrency for sale necessitates the preparation and filing of a prospectus. Any exemptions under the SFA may, however apply. Examples include private placement or small offer exemption.

Under the SFA, private placement states that offers must be made to no more than 50 persons within any 12-month period. A small offer under the SFA limits the total amount raised from offers within any 12-month period of more than S$5 million or its equivalent in a foreign currency.

This therefore means that the selling or buying of such cryptocurrency as an intermediary would need to be licensed in terms of dealing in capital markets products under a capital markets services license.

Where a cryptocurrency qualifies as a DPT under the PSA, any person who carries on a business of exchanging the cryptocurrency for money, or other DPTs in return, must be licensed under the PSA in Singapore.

In cases where the cryptocurrency is treated as e-money under the PSA, the business of issuing such cryptocurrency to provide payment transactions should be subject to taking a license under the PSA in Singapore.

Aside from the above regulatory consideration, an issuer and/or seller of cryptocurrency in Singapore also needs to create a robust set of legal documentation under Singapore law to represent and regulate transactions and define the rights and responsibilities of sellers/issuers and purchasers. The main legal documents include Token Sale Terms and Conditions, a Privacy Policy, an Anti-Money Laundering/Counter-Financing of Terrorism Compliance Manual, Simple Agreement for Future Tokens, Private Placement Memorandum, and Prospectus. This structure is indispensable in terms of protection of rights and interests of all parties.