Singapore's New Guide on ICOs Designates Tokens Requiring Licenses

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By Jeremyon Dec 04, 2018
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Players in the digital token industry in Singapore have been urged to get familiar with new obligations under the PSB and to take AML/CFT requirements to heart.

It appears that despite the shadow of doubt cast over crypto land, Singapore is swiftly taking steps towards regulation. Following the release of the new 2018 Guide to Digital Token Offerings on November 30, insiders are urging service providers of digital tokens to get familiar with a new set of legal obligations.

On November 30, the Monetary Authority of Singapore (MAS) issued the Guide, calling on relevant businesses to apply for licenses and urging digital payment token service providers to observe applicable requirements.

It was stated in the document that the Guide bears “no legal effect” and does not “supersede any applicable laws”. “Laws” here was a reference to the Securities and Futures Act (SFA) and Financial Advisers Act (FAA).

Capital Market Products Fall Under ICO Regulation

In August of 2017, the MAS expressed, “If a digital token constitutes a product regulated under the securities laws administered by MAS, the offer or issue of digital tokens must comply with the applicable securities laws.”

The new Guide has updated this definition, stating that digital tokens deemed capital market products under the SFA may be regulated by the MAS.

The new Guide provides further demarcation on which digital tokens fall under regulations, allowing market players greater clarity on requirements coming from the MAS.

While the description of digital tokens constituting capital market products includes a share, debenture, unit of business trust, securities-based derivatives contract or a unit of collective investment is not exhaustive, an insider claims that digital tokens are not capital market products.

Offers of digital tokens which constitute securities, securities-based derivatives contracts or units in a collective investment scheme are subject to the same regulation as the relevant type of securities. Thus an offer can only be made if it complies and its prospectus complies with the SFA.

The offer should be either made in or accompanied by a prospectus, however if an offer is made on units in a collective investment scheme, it is subject to authorization and recognition requirements. This means that it must comply with investment restrictions and business conduct requirements.

Offers exempt from prospectus requirements include small (personal) offers no more than S$5 million, private placements, institutional investors and accredited investors.

Intermediaries Must Carry a License

The MAS introduced the Payment Services Bill (PSB) on November 19, which stated that a person operating a business providing a service dealing in or facilitating the exchange of digital tokens must be licensed.

The Guide stipulates that intermediaries facilitating the offer or issue of tokens must be approved by the MAS and carry the relevant licenses. These intermediaries cover primary platforms, trading platforms and those providing financial advice on digital tokens.

Such regulations are expected to hasten the issue of regulations on licenses for intermediaries issuing tokens in Singapore. 

Money Laundering and Terrorism Financing Concerns Highlighted

The PSB also stipulated that a person operating a business providing any service dealing with or exchanging digital tokens will be regulated under the PSB for AML/CFT purposes.

The MAS made it clear that AML/CFT requirements were not to be taken lightly and that intermediaries involved in regulated activities would be subject to them. These requirements involve:

  • Taking steps to identify, assess and understand ML/TF risks
  • Developing and implementing policies, procedures and controls for management and risk mitigation including due diligence and transaction monitoring, screening, reporting and record keeping
  • Performing enhanced measures where higher ML/TF risks were identified to manage and mitigate higher risks
  • Monitoring, implementing and, where necessary, enhancing those policies, procedures and controls

Insider Shares Five Ways in Which the New Guide Will Impact the Industry

Analysis made by Yang Jinyan, the General Manager of the legal consultancy arm of leading crypto exchange Huobi points out five ways in which the new Guide to Digital Token Offerings will affect the industry, according to Cointime.

1. It can be asserted that any token exchanges operating in Singapore using Bitcoin for token payments mentioned in the Guide are required to follow the payment act and apply for a license.

2. Fiat trading channels could possibly become available for digital assets. Issue of payment certificates will help exchanges with compliance and reflect the possibility of opening businesses up to fiat money as the Singaporean government makes sure exchanges abide by AML and CFT laws.

3. It is worth discussing further the possibilities surrounding tokenizing securities through STOs in the Singapore market.

4. The scope for security tokens within the industry in Singapore is considerably smaller than the U.S., and utility tokens may be exempt from laws governing securities.

5. Singapore’s licensing policies should not be taken lightly as payment licenses are about to come into effect. However, guidance has still not been provided on applications for licenses and licensed exchanges (registered market operators) served by the capital market.

Yang Jinyan also expressed that digital tokens do not constitute “capital market products” as legally they are not defined as securities or futures. Token issuers, however, should abide by AML/CFT laws and laws on protecting personal information.

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