In August 2017, The Monetary Authority of Singapore (MAS) in its media release has clarified that MAS will regulate the offer or issue of digital tokens in Singapore if the digital tokens constitute products regulated under the Securities and Futures Act
Later in 30th November 2018, MAS has issued general guidance on the application of the securities laws administered by MAS in relation to offers or issues of digital tokens in Singapore. This Article is a peep into this guidance paper by MAS.
What are Digital Tokens?
Digital tokens generally refer to a category of digitally-recorded instruments, which include digital payment tokens, or more commonly known as cryptocurrencies, and tokens issued through initial coin offerings.
MAS will regulate the offer or issue of digital tokens if it comes under the ambit of Section 2(1) of Securities and Futures Act (SFA). Section 2(1) provides that, “capital markets products” includes any
- Securities (which includes Shares, Debentures and Units in a Business Trust),
- Units in a Collective Investment Scheme,
- Derivatives Contracts (which includes derivatives of shares),
- Debentures and Units in a Business Trust),
- Spot foreign exchange contracts for leveraged foreign exchange trading,
and, such other products as MAS may prescribe as capital markets products. So Digital Tokens may constitute,
- a Share,
- a Debenture,
- a Unit in a business trust,
- a Securities-based derivatives contract or
- a Unit in a collective investment scheme.
MAS will examine the structure and characteristics of, including the rights attached to, a digital token in determining if the digital token is a type of capital markets products under the SFA.
Application of Securities Laws to Digital Tokens
A person may only make an offer of digital tokens if it complies with Part XIII SFA (offers for investments). This includes the requirements that the offer must be made in or accompanied by a prospectus. Similarly where an offer is made in relation to units in a CIS, requirements under Securities and Futures (Offers of Investments) (Collective Investment Schemes) Regulations 2005 (“SF(OI)(CIS)R”), the Code on Collective Investment Schemes (“Code on CIS”) and the Practitioner’s Guide to the CIS Regime under the SFA will be applicable.
There will be exemption where the offer is,
- personal offers (not exceeding $5 million with a 12-month period),
- private placement offer (made to no more than 50 persons within a 12-month period),
- Institutional investors and accredited investors have been exempted subjected to certain conditions including advertisement restrictions.
Regulations on Intermediaries
The MAS has observed that certain types of intermediaries typically facilitate offers of digital tokens which includes those on
- primary platform (one in which one or more offerors of digital tokens may make primary offers or issues of digital tokens),
- trading platform (a person who operates a platform at which digital tokens are traded) and
- those who give financial advice.
A person who operates a primary platform in Singapore in relation to digital tokens which constitute any type of capital markets products may be carrying on business in one or more regulated activities under the SFA and so he must hold a capital markets services license for that regulated activity under the SFA unless otherwise exempted. Those who fall under the category of giving financial advice with regard to the regulated security must hold a financial adviser’s license, or be an exempt financial adviser, under the Financial Adviser’s Act (“FAA”) (Section 6).
A person who establishes or operates a trading platform in relation to digital tokens which constitute securities, derivatives contracts or units in a CIS, maybe establishing or operating an organized market and must be an approved exchange or recognised market operator under the SFA, unless otherwise exempted. With regard to the intermediaries who operates a primary platform or trading platform outside Singapore or works partially in or partially outside Singapore and for the persons who are based overseas and providing financial advisory services to the public or section of the public in Singapore, the SFA and FAA have got an extra-territorial application.
Combating Money Laundering and Terrorist Financing
The AML/CFT guidelines put forward by the MAS applies to the above-mentioned intermediaries. Those that don’t fall within the ambit of this legislation may be governed by other laws for combating ML/TF. A person carrying on a business of providing any service of dealing in digital payment tokens or any service of facilitating the exchange of digital payment tokens must be licensed and will be regulated under the Payment Services Bill (“PSB”) for AML/CFT purposes only and will be required to put in place adequate policies, procedures and controls to address its ML/TF risks.
To note, any firm that is applying technology in an innovative way to provide financial services that are regulated by MAS can apply for the regulatory sandbox. Prior to applying, the interested firms must look into whether they comply with the evaluation criteria outlined in the “FinTech Regulatory Sandbox Guidelines” issued by MAS (November 2016). This includes requirements to conduct customer due diligence, monitor transactions, perform screening, report suspicious transactions and keep adequate records. On approval of the application, MAS will provide the appropriate regulatory support by relaxing specific legal and regulatory requirements as typically prescribed, which the applicant would otherwise be subject to, for the duration of the sandbox.
MAS has mentioned in the guidelines that the contents therein are “not exhaustive,” have “no legal effect” and do not modify or supersede any applicable laws, regulations or requirements. On one hand, MAS is encouraging those who wish to offer digital tokens in Singapore or operate a platform involving digital tokens in Singapore, but to do so without compromising on the compliance of these activities with the applicable laws and regulations.
Unlike the outright ban imposed by other jurisdictions, the MAS are reluctant to adopt such a hard stance by actually applying existing legislation to regulate the use of digital tokens. If done appropriately to strike a balance between the positives and negatives affiliated with the use of digital tokens, the country and region may yet benefit accordingly.
How can Argus help?
Argus can help with your licensing, policies and procedures, and ongoing compliance, if you fall within any of the aforementioned regimes. If in need of further clarification, do reach out to us at email@example.com and we will be happy to answer your queries, whether this relates to this article or even any other regulatory compliance hurdle you may face.