Singapore tightens crypto oversight

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Sin­ga­pore, once the go-to place for major cryp­tocur­ren­cy com­pa­nies, is now look­ing at los­ing a few as it tight­ens reg­u­la­tions and seeks to have stronger oversight.

The city state recent­ly passed reg­u­la­tion that will tight­en rules for cryp­tocur­ren­cy ser­vice providers based there. 

The Finan­cial Ser­vices and Mar­kets Bill requires all cryp­tocur­ren­cy firms based in Sin­ga­pore to be licensed. This require­ment now applies even to firms that exclu­sive­ly serve off­shore clients.

The devel­op­ment could serve as an impor­tant play­book for coun­tries look­ing to attract cryp­tocur­ren­cy firms and even­tu­al­ly prof­it from them through tax­es. How­ev­er, they need to bal­ance it with their abil­i­ty to stay com­pli­ant with evolv­ing reg­u­la­tions on anti-mon­ey laun­der­ing (AML) and anti-ter­ror­ism (ATL) around the world.

Live and let live

Cryp­tocur­ren­cy ser­vice providers oper­at­ing in Sin­ga­pore were already reg­u­lat­ed by the Mon­e­tary Author­i­ty of Sin­ga­pore (MAS). 

But the new law gives the reg­u­la­tor the pow­er to inspect Sin­ga­pore-based ser­vice providers oper­at­ing over­seas, as well as the legal man­date to assist for­eign reg­u­la­to­ry bod­ies and agen­cies on investigations.

The new legal and reg­u­la­to­ry frame­work indi­cates a proac­tive will­ing­ness on Singapore’s part to accli­ma­tize to the cryp­tocur­ren­cy ecosys­tem, in con­trast to out­right ban­ning the asset class in some coun­tries, experts told Forkast

“So long as this pro­vi­sion is in place, and so long as licens­es prove dif­fi­cult to acquire, it’s unlike­ly that Sin­ga­pore can main­tain any cred­i­ble ‘Cryp­to Cap­i­tal of Asia’ nar­ra­tive,” Andrew M. Bai­ley, an asso­ciate pro­fes­sor at Yale-NUS Col­lege in Sin­ga­pore and a fel­low at Bit­coin Pol­i­cy Insti­tute, told Forkast.

See relat­ed arti­cle: Sin­ga­pore tight­ens reg­u­la­tions on cryp­to, again

Sin­ga­pore was once the go-to des­ti­na­tion for cryp­tocur­ren­cy firms flee­ing cryp­to crack­downs in Chi­na. But the expo­nen­tial growth and “cryp­to hub” image came with increased glob­al scruti­ny that prompt­ed the MAS to step in with new­er reg­u­la­tions, experts said.

Crypto’s promised land?

Already, Sin­ga­pore-based cryp­tocur­ren­cy exchanges Crypto.com and Bybit have announced they will be set­ting up offices in Dubai, as the indus­try con­tin­ues its migra­tion towards the Unit­ed Arab Emi­rates (UAE).  

Binance moved its oper­a­tions away from Sin­ga­pore and recent­ly announced its suc­cess­ful acqui­si­tion of cryp­to licens­es in Dubai. 

“It is true that some of them (cryp­to com­pa­nies) are mov­ing away,” David Lee Kuo Chuen, a pro­fes­sor at Sin­ga­pore Uni­ver­si­ty of Social Sci­ences, told Forkast. “I must admit that the pace of the license grant­i­ng is not to the expec­ta­tion of the industry.”

Since the com­mence­ment of the Pay­ment Ser­vices Act (PS Act), which came into effect in Jan­u­ary 2020, around 170 appli­cants have applied to pro­vide Dig­i­tal Pay­ment Token (DPT) ser­vices. But only four finan­cial insti­tu­tions have been grant­ed licens­es so far, accord­ing to the MAS web­site

“Investor pro­tec­tion and eco­nom­ic sta­bil­i­ty serve as key foun­da­tion­al pri­or­i­ties for us, and dig­i­tal pay­ment token (DPT) ser­vice providers are reg­u­lat­ed under the Pay­ment Ser­vices Act, pri­mar­i­ly for mon­ey laun­der­ing and ter­ror­ism financ­ing risks, as well as tech­nol­o­gy risk,” a MAS spokesper­son told Forkast.

In lim­bo

How­ev­er, while they await a license, many firms cur­rent­ly oper­ate under an exemp­tion from the MAS. The exemp­tion is in force until the appli­ca­tion is approved or reject­ed by the MAS, or with­drawn by the applicant.

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Image: Enva­to Elements

Mean­while, Sin­ga­pore slipped from its top spot as world’s most cryp­to-friend­ly coun­try in a rank­ing com­piled by Coincub.com.

Gov­ern­ment deci­sions to restrict the adver­tis­ing of cryp­tocur­ren­cy ser­vices by Vir­tu­al Asset Ser­vice Providers (VASPs) out­side of their web­sites, and a clam­p­down on Bit­coin ATMs, pushed the city state to sec­ond place, accord­ing to the lat­est Coin­cub Glob­al Cryp­to Rank­ing research.

Sin­ga­pore had ranked first in the pre­vi­ous quar­ter due to a pro­gres­sive cryp­tocur­ren­cy econ­o­my, Coin­cub noted. 

“Stan­dards and best prac­tices around secu­ri­ty, out­ages, report­ing, cus­tody and mar­ket integri­ty set the bar high, and for this rea­son not every appli­ca­tion is viable,” observed Ben Caselin, the head of research and strat­e­gy at cryp­tocur­ren­cy exchange AAX, told Forkast

“Stan­dards are still being artic­u­lat­ed, and the gen­er­al require­ments on exchanges are not eas­i­ly achieved by the major­i­ty of exchanges,” Caselin said. “We can only spec­u­late as to the exact rea­sons, how­ev­er, but what we can say is that this is a del­i­cate process that needs time.”

Andrew Sul­li­van, founder and writer at AsianMarketsense.com, told Forkast that Sin­ga­pore ear­li­er wel­comed cryp­tocur­ren­cy com­pa­nies, espe­cial­ly after China’s clam­p­down, but has been slow in actu­al­ly set­ting out the reg­u­la­to­ry frame­work for how they could operate. 

Sul­li­van said that Sin­ga­pore, like a lot of places, is try­ing to work out how much to reg­u­late the sec­tor, bal­anc­ing the attrac­tive­ness of hav­ing the busi­ness with­out being seen as an easy touch, espe­cial­ly under know-your-cus­tomer (KYC) and mon­ey laun­der­ing worries.

“Dubai cur­rent­ly is tak­ing a more open approach and allow­ing oper­a­tions with lit­tle reg­u­la­tion,” Sul­li­van said. “Inter­est­ing­ly, it is also the cen­ter of a num­ber of cryp­to conferences.” 

See relat­ed arti­cle: Is Dubai the new cryp­to promised land?

Find­ing the right balance

While the reg­u­la­tor restricts cryp­tocur­ren­cy ser­vice providers from mar­ket­ing or pro­mot­ing their ser­vices to the gen­er­al pub­lic, firms are allowed to adver­tise on their own web­sites, offi­cial social media accounts and mobile apps, as long as asso­ci­at­ed risks are clear­ly outlined. 

See relat­ed arti­cle: Sin­ga­pore cen­tral bank warns against cryp­to mar­ket­ing, promotion

“MAS will con­tin­ue to work with both the finan­cial indus­try and the broad­er ecosys­tem to find the right bal­ance in har­ness­ing the ben­e­fits while man­ag­ing the risks,” the MAS spokesper­son told Forkast.

Indus­try experts believe that Sin­ga­pore is pri­or­i­tiz­ing insti­tu­tion­al pri­or­i­ties over retail. 

It is more like­ly, there­fore, to seek insti­tu­tion­al invest­ment, and cus­to­di­al ser­vices, to gam­ing and finance (Game­Fi) and non-fun­gi­ble tokens (NFTs).

“MAS strong­ly wel­comes inno­v­a­tive blockchain tech­nol­o­gy devel­op­ment, and our doors are open to cryp­to play­ers look­ing to explore devel­op­ments in val­ue-adding use cas­es,” the MAS spokesper­son told Forkast.

“We rec­og­nize the blockchain tech­nol­o­gy under­pin­ning cryp­tocur­ren­cies can bring poten­tial ben­e­fits, and that such tech­nolo­gies can be used to enhance effi­cien­cy and cost effec­tive­ness of cross-bor­der pay­ments and trade finance,” the MAS spokesper­son added. 

See relat­ed arti­cle: How Sin­ga­pore is reimag­in­ing its ‘Asian cryp­to hub’ image

Though some may relo­cate to oth­er juris­dic­tions where reg­u­la­tions and poli­cies are evolv­ing, Sin­ga­pore may still remain the first port of call for firms being banned outright.

“It’s an inflow-out­flow issue,” Lee Kuo Chuen added. “I expect more peo­ple to move into Sin­ga­pore over the next 12 months.”

“Of course, this expo­nen­tial growth can­not con­tin­ue because there must be some tip­ping point,” he said. “You can­not have an over­heat­ed market.”

AAX’s Caselin con­curred: “We shouldn’t think too exclu­sion­ary at this stage in the devel­op­ment of this nascent indus­try,” he said. “Many cryp­to firms, espe­cial­ly exchanges, will be look­ing for mul­ti­ple licens­es to serve dif­fer­ent mar­kets dif­fer­ent­ly,” he added. “Even exchanges tak­ing a step back (from Sin­ga­pore), may in future re-approach the regulator.”

“Unfor­tu­nate­ly, in a eupho­ria, when a mar­ket is hot, peo­ple tend to for­get about risk-man­age­ment, and some­times reg­u­la­tors have to cool it down,” said Lee Kuo Chuen. 

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