A Primer: Crypto Regulation in Singapore on June 10 Here’s EYNTK about crypto in the Lion City

Get ready for TRM Talks: Crypto Regulation in Singapore with EYNTK 👇

Singapore, its harbor protected by the impressive Merlion, touts the world’s busiest container transshipment port — a symbol of a nation forged by its key role in global, cross-border commerce. So is it really any surprise that the Lion City has roared when it comes to building a new financial system characterized by cross-border payments and facilitating global commerce? Singapore, like many other jurisdictions, has attempted to stay between the navigational beacons when it comes to crypto — building a framework of regulation without stifling innovation as technology moves way faster than a shipping vessel. On June 10, TRM Talks Crypto Regulation in Singapore. Register here. And, in preparation for TRM Talks, here is everything you need to know about crypto regulation in Singapore.

Over the years, Singapore, led by the Monetary Authority of Singapore (MAS), has taken steps to build a clear framework for digital assets — a robust licensing regime, anti-money laundering regulations, and consumer and investor protection.

While the implementation of the Payment Services Act 2019 (PSA), a comprehensive framework for cryptocurrency licensing and regulation, occurred in January 2020, Singapore’s interest in crypto dates back to at least August 2017 when MAS issued a press release that discussed whether or not certain cryptocurrency products may constitute “collective investment schemes” under Singapore’s Securities and Futures Act (SFA) which regulates capital market products. The SFA imposes certain reporting and record-keeping obligations on cryptocurrencies that are issued in public offerings, including a requirement to prepare a prospectus for potential buyers. The release also noted that the regulator saw various consumer, investor, money laundering and other risks associated with investing in cryptocurrency.

In May 2018, MAS followed up the 2017 warning with a press release stating that the regulator had written to eight crypto exchanges to warn them of the need to seek authorization if certain token offerings were “securities” under the FSA. MAS also issued a warning to the issuer of an initial coin offering (ICO) to stop offering tokens that constitute “securities” to Singapore-based investors. In addition, between 2018 and 2019 MAS issued four separate warnings related to fraudulent websites soliciting bitcoin investments.

In January 2018, MAS again issued a press release warning the public of certain risks associated with cryptocurrencies, while Deputy Prime Minister Tharman Shanmugaratnam stated that cryptocurrencies are subject to the same AML and CFT measures as traditional fiat currencies.

A year later, the PSA was passed, requiring exchanges and other cryptocurrency businesses to obtain a MAS operating license in order to do business in Singapore. Under the PSA, MAS awards digital payment token licenses to Singapore virtual asset service providers (VASPs) that apply and meet certain requirements. And, in April 2022, Singapore extended the licensing requirement to VASPs which only do business overseas.

In January 2021, MAS amended the PSA to reflect changes in international AML standards and emerging money laundering and terrorist financing typologies. The amendments broadened the scope of the PSA to include the transfer of cryptocurrencies and custodial wallets service providers. Essentially, in order to obtain a license under the PSA, VASPs must implement robust anti-money laundering (AML) and countering the financing of terrorism (CFT) controls mirroring the expectations of AML global standard-setting body, the Financial Action Task Force (FATF).

In January 2022, MAS issued guidelines intended to curb the promotion of cryptocurrency services to the public. Singapore, like the U.K., Ireland, Spain and a number of other jurisdictions, set forth guidelines prohibiting crypto businesses from advertising in public areas, including on buses, ATMs, public websites, and in broadcast and print media. The guidelines, which allow crypto businesses to market on their own websites, mobile apps or social media accounts, prohibits engaging with social media influencers to get their message out. “MAS strongly encourages the development of blockchain technology and innovative application of crypto tokens in value-adding use cases. But the trading of cryptocurrencies is highly risky and not suitable for the general public,” said the central bank’s assistant managing director for policy, payments and financial crime Loo Siew Yee. "DPT service providers should therefore not portray the trading of DPTs in a manner that trivialises the high risks of trading in DPTs, nor engage in marketing activities that target the general public.”

In March 2022, MAS issued Notice PSN02 which set out “requirements for digital payment token service providers on anti-money laundering and countering the financing of terrorism”. The notice essentially adopts the most recent FATF guidance on Virtual Assets and VASPs including the need for VASPs to take a risk based approach, enhanced due diligence in certain circumstances, reporting and record-keeping obligations.

With the PSA in effect, cryptocurrency regulations in Singapore are broadly aligned with FATF guidance — but that also means we could see additional regulation in emerging areas such as decentralized finance (DeFI) and non-fungible tokens (NFTs) addressed by FATF. While DeFi and NFTs could fall under the PSA, additional guidance, in a constantly evolving space, is likely forthcoming.

Ravi Menon, the managing director of the MAS, explained in an interview with Bloomberg in October 2021, that “the city-state sees promise in areas such as decentralization, smart contracts and encryption, and wants to be well-positioned if they become integral to our economies, he said. But there are also ‘serious risks,’ he said, giving the examples of money laundering and terrorist financing. ‘It could lead to nowhere, or it could lead to a lot of risk and turmoil, or it could lead to a very good outcome for the economy and the society,’ Menon said of the crypto phenomenon. ‘We have to look at it in terms of scenarios, and prepare ourselves for any of those outcomes.’”

And, there is clearly more to come. Just this week, MAS announced that it plans to research use cases for decentralized finance (DeFi) on public blockchains. In a press release, MAS announced the launch of Project Guardian, with partners such as JPMorgan, Marketnote and DBS, to examine the “economic potential and value-adding use cases of asset tokenization.” The first pilot under Project Guardian, according to reporting from the Block, involves creating a permissioned liquidity pool. “This will consist of tokenized bonds and deposits, with the purpose of carrying out secured borrowing and lending on a public blockchain, executed by smart contracts.”

The Lion City and its iconic port are a global symbol of cross border commerce and Singapore’s thoughtful approach to crypto regulation is an attempt to build on that legacy. Understanding the regulatory framework in Singapore is critical for businesses looking to engage with the nation, but also for those looking to understand regulatory frameworks for digital assets across the globe. To examine and discuss Singapore's approach to crypto regulation, TRM Talks, on June 10, is joined by Tan Shi Min, Deputy Director & Head, Payments Policy Division at the Monetary Authority of Singapore, John Ho, Global Head of Legal, Financial Markets at Standard Chartered Bank and Grace Chong, Head of Financial Regulatory (Singapore) at Gibson, Dunn & Crutcher LLP.