The writer of this article, who looks at the way that Singapore’s regulators go about governing the cryptocurrency and digital assets space, argues that the Asia city-state offers a model for jurisdictions looking to cautiously introduce such entities into financial systems.
In this article, Bryan Tan, partner at law firm Reed Smith and a member
of its dedicated cryptocurrency and digital assets group,
On-Chain, talks about the state of regulatory and business
development in Singapore. The editors are pleased to share
these views; the usual editorial disclaimers apply. Jump into the
conversation! Email tom.burroughes@wealthbriefing.com
Singapore, renowned for its robust financial sector and
progressive regulatory environment, has emerged as a significant
hub for cryptocurrency and blockchain technology. The country’s
strategic approach, characterised by clear regulations and an
innovative mindset, has positioned it favourably within the
global crypto ecosystem. With proactive regulatory frameworks and
a conducive business environment, Singapore’s emphasis on fintech
innovation, coupled with its strategic geographic location, has
attracted numerous blockchain startups and established crypto
firms.
The cornerstone of Singapore’s crypto-friendly environment is its
clear and comprehensive regulatory framework. The Payment
Services Act (PSA), enacted in January 2020, is a pivotal piece
of legislation that provides regulatory clarity for
cryptocurrency operations. The PSA classifies various payment
activities, including digital payment token services, under a
unified regulatory framework. This Act requires crypto businesses
to obtain licences, ensuring compliance with anti-money
laundering (AML) and counter-terrorist financing (CTF)
regulations.
Singapore’s commitment to fostering innovation is evident through
initiatives such as the Singapore FinTech Festival (SFF), which
provides a platform for global fintech and crypto stakeholders to
collaborate. Introduced in 2016, it is the largest of its kind.
The country also boasts an advanced technological infrastructure,
including high-speed internet and robust cybersecurity measures,
which are essential for the growth of the crypto sector.
Slow and steady wins the race?
The Monetary
Authority of Singapore (MAS), the country’s central bank and
financial regulatory authority, has adopted a balanced and
progressive approach towards bitcoin and cryptocurrencies as
opposed to one of unbridled enthusiasm or unwarranted exuberance.
MAS clearly recognises the potential of blockchain technology and
digital currencies while also emphasising the need for regulation
to mitigate risks linked to cryptocurrencies.
To that end, MAS has issued clear guidelines on the use and
regulation of cryptocurrencies. It distinguishes between utility
tokens, which provide access to a service, and security tokens,
which represent ownership or debt. This differentiation helps in
applying appropriate regulations based on the nature of the
token. Likewise, the applications for PSA licences have been
closely scrutinised, with many falling on the wayside.
While MAS is supportive of crypto innovation, it also issues
regular warnings to the public about the risks associated with
cryptocurrency investments. These warnings highlight the volatile
nature of digital assets and the importance of conducting
thorough research before investing. Severe advertisement
restrictions have also been put in place.
Retail access to cryptocurrencies in Singapore is relatively
advanced, facilitated by a growing number of exchanges and crypto
service providers. However, MAS takes the position that
speculation in cryptocurrencies is not suitable for the retail
market and ensures that these services are regulated to protect
consumers.
Singapore is home to several reputable cryptocurrency exchanges
which provide retail investors with easy access to buying,
selling, and trading digital assets. These platforms are required
to comply with the PSA, ensuring that they operate within a
regulated environment which prioritises consumer protection.
One of the strictest regulatory regimes in the
world
Nonetheless, the MAS is steadfastly determined to maintain and
even harden its current stance on cryptocurrencies. In a response
published in the Financial Times in September 2023, MAS
agreed “that cryptocurrencies could be misused as a conduit for
money laundering as well as pose risks to retail customers. MAS
grants licences to cryptocurrency players only if they have
robust anti-money laundering controls; most applicants have not
been successful.”
It added that it “has also proposed and consulted on a wide range
of regulatory measures to mitigate the risks posed by
cryptocurrencies to retail customers. As these measures are
progressively implemented from the end of this year onwards,
Singapore will have one of the strictest regulatory regimes in
the world governing retail access to cryptocurrencies.”
Perhaps this stance is borne out in its view of the bitcoin ETF
(and the upcoming ethereum ETF). The US, the UK and Hong Kong, as
well as Thailand, have approved it in some form for their markets
while Singapore has held its ground.
On the other hand, the MAS favours distributed ledger technology
or blockchain, the technology underlying cryptocurrencies. MAS’s
Project Ubin is a testament to its proactive approach. This
collaborative project with the financial industry aims to explore
the use of blockchain for clearing and settling payments and
securities. The successful completion of Project Ubin’s multiple
phases has showcased the potential of blockchain technology in
enhancing efficiency and reducing costs in financial
transactions.
The global picture
Compared with other jurisdictions, Singapore’s approach to
cryptocurrency regulation and retail access stands out for its
clarity and balance. In the US, the regulatory landscape for
cryptocurrencies is fragmented, with different states having
varying regulations. The Securities and Exchange Commission (SEC)
and the Commodity Futures Trading Commission (CFTC) play
significant roles in regulating crypto activities, but the lack
of a unified national framework creates uncertainties. Retail
access is widespread, with major exchanges operating under strict
compliance measures. However, the regulatory ambiguity can be a
deterrent for new entrants.
The European Union is working towards a comprehensive regulatory
framework with the proposed Markets in Crypto-Assets (MiCA)
regulation. MiCA aims to create a harmonised approach across EU
member states, providing legal certainty for crypto businesses
and protection for investors. Retail access to cryptocurrencies
is growing, with platforms serving a large user base. However,
the regulatory environment is still evolving, and full
implementation of MiCA is awaited.
Japan has been at the forefront of cryptocurrency regulation,
being one of the first countries to recognise bitcoin as a legal
method of payment. The Financial
Services Agency (FSA) oversees the regulation of crypto
exchanges, ensuring stringent compliance with AML and CTF
regulations. Retail access in Japan is robust, with widespread
acceptance of cryptocurrencies for various transactions. The
clear regulatory environment has fostered a thriving crypto
ecosystem, but the stringent requirements can be a barrier to
entry for smaller businesses.
Hong Kong, a major financial hub in Asia, has a more
laissez-faire approach compared with Singapore. The Securities
and Futures Commission (SFC) regulates cryptocurrency
exchanges that offer trading of at least one security token,
while other crypto activities remain largely unregulated. Retail
access is facilitated by numerous exchanges and OTC
platforms.
Singapore’s strategic approach to cryptocurrency regulation,
characterised by clear and comprehensive frameworks, proactive
support for innovation, and a balanced stance by MAS, has
established it as a leading crypto hub for serious players. The
country’s commitment to fostering a secure and transparent
environment for both businesses and retail investors sets it
apart from other jurisdictions.
While the regulatory landscape continues to evolve globally,
Singapore’s emphasis on clarity, consumer protection, and
technological advancement positions it as a potential model for
other nations looking to cautiously integrate cryptocurrencies
into their financial ecosystems.
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