Crypto regulations in Singapore

Singapore has emerged as a global leader in embracing and regulating the cryptocurrency industry, fostering an environment that encourages innovation while maintaining robust investor protection measures. At the core of Singapore’s regulatory framework is the Monetary Authority of Singapore (MAS), which oversees and shapes policies in alignment with the city-state’s commitment to technological advancement.

The Payment Services Act (PSA), implemented in January 2020, has been a pivotal element in Singapore’s approach to cryptocurrency regulations. Under the PSA, digital payment token services, including cryptocurrency exchanges, are subject to registration and compliance with anti-money laundering (AML) and counter-terrorism financing (CTF) regulations. This comprehensive legislation provides a clear structure for licensing, ensuring the security of digital payment tokens and safeguarding consumer interests.

Cryptocurrency exchanges and wallet providers, vital components of Singapore’s thriving crypto ecosystem, are required to obtain licenses under the PSA. The licensing framework imposes stringent measures to protect users and maintain the integrity of the financial system.

CRYPTO REGULATION IN SINGAPORE

Singapore’s commitment to combating illicit activities in the crypto space is evident in its emphasis on AML and CTF measures. Entities engaged in crypto-related activities are mandated to conduct thorough customer due diligence, monitor transactions, and promptly report any suspicious activities.

Taxation policies in Singapore further contribute to the attractiveness of the jurisdiction for crypto businesses. As of my last knowledge update in January 2022, digital payment tokens are not subject to goods and services tax (GST), providing additional incentives for businesses operating in the crypto sector.

Singapore’s regulatory approach is characterized by its support for innovation. Initiatives such as the Financial Sector Technology and Innovation (FSTI) scheme demonstrate the country’s commitment to funding projects that enhance the competitiveness of its financial sector.

The city-state’s proactive stance and regulatory clarity have garnered global recognition, positioning Singapore as a preferred destination for cryptocurrency businesses. As the regulatory landscape continues to evolve, stakeholders are encouraged to stay informed about updates, ensuring ongoing compliance with the latest legal requirements. Overall, Singapore’s crypto regulations showcase a balanced approach that fosters innovation and ensures the integrity and security of its financial ecosystem.

Advantages

Cryptocurrency regulations in Singapore are shaped by a proactive and forward-thinking approach, positioning the city-state as a global leader in fostering a conducive environment for blockchain and digital currency innovation. Key aspects of crypto regulations in Singapore include:

Monetary Authority of Singapore (MAS): The MAS, as the central regulatory authority, plays a pivotal role in overseeing and shaping crypto regulations. Its approach is characterized by a commitment to technological advancement, financial stability, and investor protection.

Payment Services Act (PSA): Enacted in January 2020, the PSA is a cornerstone of Singapore’s crypto regulations. It brings various payment services, including digital payment token services like cryptocurrency exchanges, under regulatory oversight. The PSA provides a clear licensing framework, ensuring compliance with anti-money laundering (AML) and counter-terrorism financing (CTF) regulations.

Licensing Requirements: Cryptocurrency exchanges and wallet providers must obtain licenses under the PSA. This licensing framework imposes stringent measures to secure digital payment tokens and protect consumers, enhancing the credibility and security of the crypto industry.

Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) Measures: Entities engaged in crypto-related activities are mandated to adhere to robust AML and CTF measures. This includes thorough customer due diligence, transaction monitoring, and the prompt reporting of suspicious activities.

Taxation Policies: Singapore’s taxation policies contribute to its appeal for crypto businesses. Digital payment tokens are not subject to goods and services tax (GST), providing tax certainty and incentivizing businesses in the crypto sector.

Innovation Support: Singapore actively supports blockchain and fintech innovation through initiatives like the Financial Sector Technology and Innovation (FSTI) scheme. This scheme provides funding support for projects that enhance the competitiveness of Singapore’s financial sector.

Global Recognition: Singapore’s regulatory approach has garnered global recognition, attracting both local and international players in the crypto space. The city-state’s commitment to regulatory clarity and innovation-friendly policies has positioned it as a preferred destination for cryptocurrency businesses.

Ongoing Evolution: The regulatory landscape in Singapore continues to evolve, reflecting the dynamic nature of the crypto industry. Stakeholders are encouraged to stay informed about updates and amendments to regulations, ensuring ongoing compliance with the latest legal requirements.

Cryptocurrencies in Singapore operate within a regulatory framework primarily governed by the Payment Services Act (PSA). The PSA classifies cryptocurrencies as either regulated or unregulated, considering their attributes and features. Some cryptocurrencies may fall outside the PSA’s scope, while others might come under the purview of Singapore’s Securities and Futures Act 2001 (SFA) if their characteristics resemble capital markets products or securities.

Before engaging in any cryptocurrency-related activities in Singapore, seeking legal advice from a Singapore law firm is essential to understand the regulatory implications under Singapore law.

CRYPTOCURRENCY REGULATION

Under the PSA, businesses providing payment services, including cryptocurrency exchanges, must obtain a payment license. The seven defined payment services under the PSA include account issuance service, e-money issuance service, cross-border money transfer service, domestic money transfer service, merchant acquisition service, digital payment token (DPT) service, and money-changing service.

Cryptocurrencies may fall under the definitions of “e-money” or “digital payment token.” An entity providing payment services related to such cryptocurrencies needs a license under the PSA. “E-money” refers to electronically stored monetary value used for payment transactions. “Digital payment token” represents a digital representation of value intended as a medium of exchange accepted by the public.

A DPT service may involve dealing in DPTs or facilitating their exchange. Dealing in DPTs includes buying or selling them in exchange for money or other DPTs, while facilitating the exchange entails operating a digital payment token exchange.

Certain cryptocurrencies falling under the definition of limited purpose DPT are not regulated under the PSA. Limited purpose DPTs encompass non-monetary customer loyalty or reward points, in-game assets, or similar digital representations with specific use cases.

Two types of licenses apply to cryptocurrencies under the PSA: the standard payment institution license and the major payment institution license. The latter is required if the total value of payment transactions exceeds specified thresholds.

For businesses engaged in e-money issuance services, a major payment institution license is necessary based on criteria such as the total value of e-money stored in payment accounts. Compliance with these licensing requirements ensures adherence to Singapore’s regulatory framework governing the dynamic cryptocurrency landscape.

The PSA delineates both the prerequisites for obtaining a license and the ongoing compliance obligations for licensees. Eligibility criteria encompass a minimum base capital, set at S$100,000 for a standard payment institution license and S$250,000 for a major payment institution license. An essential requirement is the appointment of an executive director who is a Singapore citizen or Permanent Resident, or alternatively, one non-executive director who is a Singapore citizen or Permanent Resident along with an executive director holding a Singapore employment pass. Additionally, the license applicant must maintain a permanent place of business or a registered office in Singapore, serving as the location for transaction record-keeping related to the provided payment services.

Moreover, payment institutions must designate at least one representative at their established place of business or registered office to handle queries or complaints. Major payment institutions are obligated to maintain a security amount with MAS, while recent amendments empower MAS to prescribe additional classes of licensees, potentially subjecting standard payment institutions to the same requirement.

Under the SFA, cryptocurrencies may share features with traditional capital markets products, such as securities, collective investment scheme units, derivatives contracts, and spot foreign exchange contracts for leveraged foreign exchange trading. Consequently, conventional requirements could apply to these cryptocurrencies based on the specific activities conducted. For instance, dealing in cryptocurrencies constituting capital markets products necessitates a capital markets services license, and offering securities-based cryptocurrencies requires the preparation and lodging of a prospectus with MAS.

Cryptocurrencies with asset-backed features may be subject to licensing requirements under the Commodity Trading Act 1992 if trading activities constitute spot commodity trading. Generally, cryptocurrencies that align with regulated product features in Singapore are not prohibited, but compliance with applicable laws is imperative. Parties engaging in activities related to cryptocurrencies not falling under regulated product features can do so without restrictions, subject to compliance with Singapore’s general laws.

MAS is proactive in adapting Singapore’s regulations to the evolving global cryptocurrency landscape, considering associated risks and opportunities. In line with this, MAS issued a consultation paper on July 3, 2023, seeking public feedback on proposed amendments to the Payment Services Regulations 2019. These amendments would mandate DPT service providers to safeguard customer assets under a statutory trust and restrict them from facilitating lending and staking of DPT tokens by retail customers. The objective is to enhance customer asset protection and address unfair trading practices by DPT service providers.

SALES REGULATION

The regulation of cryptocurrency sales hinges on whether the cryptocurrencies fall within the purview of products governed by the PSA or SFA. If a cryptocurrency is categorized as a security, securities-based derivatives contract, or unit in a collective investment scheme, offering it for sale mandates the preparation and submission of a prospectus. However, exemptions under the SFA, such as private placement or a small offer exemption, may apply.

Private placement, under the SFA, stipulates that offers should be made to no more than 50 persons within any 12-month period. A small offer, under the SFA, sets a cap on the total amount raised from offers within any 12-month period, not exceeding S$5 million or its equivalent in a foreign currency.

Acting as a broker for the sale or purchase of such a cryptocurrency necessitates obtaining a capital markets services license for dealing in capital markets products.

If a cryptocurrency falls under the definition of a DPT (Digital Payment Token) according to the PSA, engaging in the business of buying or selling it in exchange for money or another DPT requires obtaining a license under the PSA in Singapore.

In cases where a cryptocurrency is classified as e-money under the PSA, engaging in the business of issuing it to facilitate payment transactions mandates obtaining a license under the PSA in Singapore.

Apart from addressing regulatory considerations, individuals or entities issuing or selling cryptocurrencies in Singapore must establish a comprehensive set of legal documents under Singapore law to govern transactions and delineate the rights and obligations of sellers/issuers and purchasers. Essential legal documentation includes Token Sale Terms and Conditions, a Privacy Policy, an Anti-Money Laundering/Counter-Financing of Terrorism Compliance Manual, a Simple Agreement for Future Tokens, a Private Placement Memorandum, and a Prospectus. This framework is crucial for safeguarding the rights and interests of all parties involved.