Singapore is proposing rules to control cryptocurrency speculation in retail markets. Here’s the latest update

Singapore is set to implement stricter regulations for cryptocurrency service providers, as confirmed by the city-state's financial authority

The Monetary Authority of Singapore stated on November 23, 2023 that the proposed regulations, informed by public feedback, outline business conduct and consumer access measures to mitigate potential harm.

Singapore’s Payment Services Act, a regulatory framework governing payment services and the provision of crypto services to the public, became effective in January 2020. Subsequently, Singapore has intensified its oversight of crypto firms. In July, it mandated companies to safeguard customer assets through a statutory trust by the year’s end. The Monetary Authority of Singapore (MAS) also imposes restrictions on firms, barring them from facilitating lending or staking of retail customers’ assets.

In January 2022, Singapore implemented a ban on crypto service providers promoting their services in public spaces or through intermediaries such as social media influencers. Marketing or advertising by crypto service providers is now limited to their official corporate websites, mobile applications, or designated social media accounts.

The Monetary Authority of Singapore (MAS) has put forth revised guidelines aimed at mitigating the escalating phenomenon of digital asset speculation within retail markets. These measures encompass prohibiting crypto service providers from accepting locally issued credit card payments, disallowing incentives for cryptocurrency trading, and restricting financing, margin, or leverage transactions for retail customers. The finalized measures are scheduled to be phased in, commencing in mid-2024, according to MAS. 

The regulator will additionally introduce rules related to business conduct, including the mandate for crypto service providers to publish policies, procedures, and criteria governing the listing of a digital payment token. They are also required to establish effective procedures for handling customer complaints and resolving disputes.

 In a recent publication, the Central Bank issued modified regulations applicable to digital payment token providers and affiliated cryptocurrency entities, focusing on market activities with a specific emphasis on diminishing price speculation. As per the documentation, companies will be prohibited from offering trading incentives to customers, aligning with authorities’ sustained argument that certain users are enticed into speculative activities, potentially leading to substantial gains but with an associated risk of significant losses.

Highlighted incentives, subject to the proposed guidelines, encompass the provision of leverages and margins, with certain forms of financial support now facing potential prohibition. These regulatory measures align with the government’s broader strategy to fortify safeguards against fraud and minimize risks within the retail market. Against the backdrop of cryptocurrency firm implosions causing significant market losses, both local and global authorities are increasingly advocating for measures to enhance investor safety in financial markets.

Financial limitations and wider retail regulations

The financial regulatory authority additionally suggests the cessation of credit lines for acquiring specific assets, as companies are set to be barred from accepting transactions facilitated through domestically issued credit cards. 

Moreover, the newly proposed guidelines impose restrictions on referrals that provide incentives for onboarding new clients, and learn-to-earn programs face limitations as well. It’s noteworthy that these fresh regulations extend their applicability to all retail investors, encompassing both accredited and unaccredited users.

Geographically, the guidelines have a reach that extends to retail traders situated just beyond the confines of the city-state. Scheduled to come into effect in mid-2024, these rules have been proposed following a year-long series of public consultations, aiming to establish comprehensive regulations for digital asset payment token providers.

In addition to the global crisis instigated by Terra and FTX last year, investors in Singapore were also impacted by the fallout from Three Arrows Capital. The collapse of Three Arrows Capital prompted a renewed regulatory scrutiny of the market, prompting authorities to reassess and strengthen regulatory measures to bolster investor protection and market stability.

The Deputy Managing Director for Financial Supervision at MAS emphasized that despite the proposed rules, it would remain challenging to entirely shield users from succumbing to the inherently speculative and high-risk nature of digital assets. MAS is encouraging consumers to stay vigilant and exercise the highest level of caution when engaging in Digital Payment Token (DPT) services, and to refrain from transactions with unregulated entities, including those operating from abroad.

Singapore enhances broader regulatory frameworks

Singapore is undergoing a broad regulatory overhaul, solidifying its position as a significant crypto hub in Asia. Numerous firms are converging on the country, and a multitude of others are actively pursuing licenses to provide services related to digital assets.

The nation has introduced regulations specifically addressing stablecoins, aligning with other jurisdictions that recognize their significance as pivotal instruments in assuming the role of digital currency alongside Central Bank Digital Currencies (CBDC). The regulatory stance emphasizes that private cryptocurrencies are deemed suboptimal, citing their lackluster performance as a medium of exchange or store of value, susceptibility to sharp speculative fluctuations, and the substantial losses experienced by many cryptocurrency investors. 

Singapore’s forward-thinking ecosystem and tax-friendly regulations position it at the forefront of the Crypto Adoption Index. The city-state stands as a global leader in nurturing innovation and technology within its cryptocurrency sector. Our team will closely monitor regulatory developments in Singapore and provide timely updates as they unfold.

The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation.

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Singapore Payment Service Act application on Crypto-currency and fintech business

Technologies are affecting our daily lives and the Singaporean government perceived the importance of financial technologies that are transforming the worldwide payments and potential risks that new payment systems bring about.

Thus, the updated legal framework in the field of payment systems had long been in the regulator’s “to-do” list.

The legislative body of Singapore passed the Payment Services Act on January 14, 2019 (hereinafter:- “PSA”), with the aim to adjoin crypto exchange providers and dealers under the supervision of the Monetary Authority of Singapore (hereinafter:-”MAS”), central bank and financial regulator. The Act established a flexible framework for payment service providers and certainty for consumer protection, at the same time aims to encourage innovation, progress in the payment systems and FinTech sector. This article will discuss the key changes brought by the new legal regime which directly affects virtual assets business.

Registration / Licensing requirement

Under the new regime, entities providing payment services must hold a license which allows them to carry out relevant business activities of certain payment services. The PSA regulates seven broad category of money business services:

  1. account issuance;
  2. domestic money transfers;
  3. cross border money transfers;
  4. merchant acquisition;
  5. e-money issuance;
  6. digital payment token;
  7. money-changing.

This article will mainly focus on digital payment tokens and e‑money issuance services. PSA defines the ‘digital payment token’ as any digital representation of value expressed as a unit, not denominated in any currency or pegged by its issuer to any currency, intended to be a medium of exchange accepted by the public and can be transferred, stored or traded electronically.

Correspondingly, e-money is defined as electronically stored monetary value denominated in a currency or pegged by its issuer to a currency, and has been paid for in advance to enable the making of payments, and is accepted by a person other than its issuer and represents a claim on its issuer.

There are three types of licenses available for applying: the standard payment institution licence, the major payment institution licence and the money-changing licence. Cryptocurrency and fintech activities fall under standard and major payment institution licenses.

Service providers which are willing to engage in any payment service providers can apply to MAS to apply for standard payment institution license. Certain financial threshold is established to be eligible for a standard payment license. Holders of subject license can only accept, process or execute payment transactions per calendar year, on average amount not exceeding:

  • $3 million (or its equivalent in a foreign currency), for any one of those payment services; or
  • $6 million (or its equivalent in a foreign currency), for 2 or more of those payment services.

Should the service providers exceed this amount, they must apply for a major payment institution license. Major license holders are subject to stricter regulation as their operations pose higher risks to the general public. To be more precise, under PSA major payment institutions are required to ensure an undertaking or guarantee by any Singaporean bank or financial institute to have full accountability for customers’ money and a deposit in a trust account along with any other safeguards specified by MAS.

Moreover, major payment institution’s licence is required when the financial service provider conducts a business of:

  • one or more payment services per month exceed $3 million (or equivalent in foreign currency) for a single payment service or $6 million (or equivalent in foreign currency) for 2 or more of the payment services for payment services;
  • e-money account issuance service and the average over a calendar year of total value in one day of all e-money stored in any payment account exceeds $5 million (or equivalent in foreign currency);
  • e-money issuance service and the average over a calendar year of the total value in one day of all specified e-money issued by the licensee exceeds $5 million (or equivalent in foreign currency).

With an established threshold for standard payment institutions, MAS aims to build a flexible legal regime which maintains supporting emerging businesses and encourages innovation within the sector. This way, small e-money and digital token issuers with less than average $5 million daily float can have an access to the market without having to worry about heavy regulatory burdens as opposed to other major payment institutes.

Risk management requirements

The act lays a foundation for MAS to act as a supervisor on cybersecurity and anti money laundering and countering the financing of terrorism (Hereinafter:- “AML/CFT”) issues. While reviewing applications, MAS carefully examines several factors, such as applicant’s awareness of AML/CFT risks, technological risks overlooked by business models, and appropriate control and risk mitigation tools to address those risks.

Licensees have a statutory duty to take necessary AML/CFT measures and have internal policies in place. Moreover, the licensees ought to establish cybersecurity procedures to minimize technological and cyber risks. The main objective of these compliance measures is to protect consumers against financial loss and businesses against insolvency.

Linking today with future

The new act brought an increasing interest into the financial services business, as it provided clarity to basic concepts of e-wallet, virtual currency exchanges and digital payment tokens. Although to date, the consumer risks are relatively low owing to the rate of cryptocurrency use among Singaporeans. But as the number of companies applying for a license is growing (480 applications filed until July 2021), industry players might introduce new products and services to attract customers, which might result in some subsidiary legislation in the near future.

The content of this article is intended to provide a general guide to the subject matter, not be considered as a legal consultation.

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Online gambling regulation in Singapore

Basics of gambling regulation

Gambling has always been opposed in Singapore, anyone who is illegally playing in the gambling website offered other than exempt operators can face up to USD 5000 of fine and/or 6 months of jail under the Betting Act (1960) and the Common Gaming Houses Act(1961). However, in the rapidly changing digital world where the gaming is going virtual there is a growing need to evolve regulations accordingly.

Gambling industry of Singapore is currently regulated by following authorities:

  • Casino Regulatory Authority;
  • Ministry of Home Affairs’ (hereinafter referred as “MHA”);
  • Gambling Regulatory Unit;
  • the Singapore Totalizator Board;
  • the Singapore Police Force; and
  • the Ministry of Social and Family Development.

The Remote Gambling Act (2014) (hereinafter referred as “RGA”) regulates online gambling activities; Section 8 of the RGA states that anyone who gambles through remote communication and uses a remote gambling service shall be guilty of an offence. The subject act extensively defines the gambling service, which includes:

  1. conduct of a public lottery;
  2. supply of public lottery tickets;
  3. placing, making or accepting of bets; or
  4. conduct of game of chance where the game is played for money, or money’s worth, and customers give money, or money’s worth, to play the game.

Exempt operators in online gambling

However, online gambling is legal only when done through exempt operators. To date, there are only two operators which have been granted certificates of exemptions under the current RGA, particularly Singapore Pools and Singapore Turf Club. These operators are owned by the Singapore Totalizator Board and a Singapore statutory board.

Other operators may also apply for an exemption under the rules of Betting Act and Common Gaming Houses Act. The MHA will grant the exemption provided that it serves for the public interest. While there is no explicitly written procedure to apply for an exemption to relevant bodies, the legislation does not specify the duration of the license and costs associated with the exemption. The validity period of the certificates will be determined solely by the regulator, to cite an instance of certificates exemption owned by Singapore Turf Club and Singapore Pools, they are valid for three years. According to the MHA, the evaluation of exempt applications may take from 9 to 12 months.

The exempt license holders are subject to following requirements:

  • establish solid system to control anti-money laundering and combating terrorist financing and be based in Singapore to facilitate the enforcement of above conditions;
  • offer remote gambling only for existing products, i.e. new betting schemes must be officially approved before offering;
  • casino-style games and poker are not allowed.

Exempt operators are subject to regular inspections and audits. In case of non-compliance with established requirements, operators may be imposed a fine in the amount of 1 million Singapore Dollars, followed by revocation or suspension of a license.

The breach of gambling laws will bring serious consequences, in the form of fines (from USD 20,000 to USD 500,000) and up to seven years of imprisonment.

Moreover, if the company is engaged in illicit remote gambling activities, there is high chance that the financial transaction provider will be mandated a payment block order which will:

  • prevent accepting credits;
  • cheques, bank draft or similar instruments which is drawn by or issued to the name of the company;
  • prevent accepting any financial transfers to or from the company;
  • block payments or forbid transactions related to gambling transactions.

Gaming industry: today and tomorrow

Existing legislation does not address modern problems of the gaming industry and most of them seem outdated to ban unauthorised online gaming and establish transparent rules to regulate it. However, the new Gambling Regulation Authority is expected to be established in 2021, which will combine the current regulators under a single institute. The MHA has also planned to review and amend all existing gambling laws in 2021 to ensure “regulatory mechanisms can effectively address evolving gambling products and business models”. As of July 2021, the MHA has proposed updates to the existing laws, and proposed amendments to public consultation. The proposals are on the table, whereas the relevant legislative developments have not yet been officially introduced.

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