Cryptoassets for investment and financing

Regulatory threshold

What attributes do the regulators consider in determining whether a cryptoasset is subject to regulation under the laws in your jurisdiction?

Regulators consider whether a cryptoasset contains attributes of, among others :

  • a commodity under the Commodity Trading Act (CTA);
  • a capital markets product under the Securities and Futures Act (SFA); or
  • a digital payment token (DPT) under the Payment Services Act (PSA).

Depending on the exact nature and attributes of certain cryptocurrencies, regulatory considerations on deposit taking and money lending may also be relevant.  

If a cryptoasset is subject to a commodity forward contract, leveraged commodity trading, contract made pursuant to trading in differences or spot commodity trading or is an index, a right or an interest in a commodity, then the issuer and broker may be subject to licensing requirements under the CTA.

Under the SFA, a cryptoasset may be:

  • a share, if it confers or represents ownership interest in a company;
  • a debenture, if it evidences the issuer’s indebtedness in respect of any money that is or may be lent to the issuer by the token holder;
  • a unit in a business trust, if it confers or represents ownership interest in the trust property of a business trust; 
  • a securities-based derivatives contract, if it is a form of derivatives contract of which the underlying thing is a share or debenture of unit in a business trust; and
  • a unit in a collective investment scheme.

The offer of such cryptoassets is subject to the regulatory regime under Part XIII of the SFA relating to the offers of investments, and containing, among other things, the prospectus and prospectus exempt requirements.

A cryptoasset is a DPT under the PSA if it:

  • is expressed as a unit;
  • is not denominated in or pegged to any currency;
  • is intended to be a medium of exchange accepted by the public; and
  • can be transferred or stored electronically.

Service providers which deal in or facilitate the exchange of DPTs, unless otherwise exempted or excluded, must hold a standard payment institution licence or a major payment institution licence, depending on whether the monthly average value of transactions accepted, processed or executed over a calendar year exceeds S$3 million or its equivalent in foreign currency.

Investor classification

How are investors in cryptoassets classified and treated differently?

Certain requirements under the SFA and the CTA do not apply to accredited investors. There is also different regulatory treatment of expert investors and institutional investors under the SFA.

Under the PSA regime, there is no classification of investors.

The SFA regime identifies different classes of investors, namely retail customers, expert investors, accredited investors and institutional investors:

‘Retail customers’ are customers who are not accredited investors, expert investors or institutional investors.

‘Expert investors’ are persons whose business involves the acquisition, disposal or holding of capital markets products as principal or agent, or a trustee of such trust that the Monetary Authority of Singapore (MAS) may prescribe.

An ‘accredited investor’ under the SFA and CTA is generally:

  • an individual who:
    • has net personal assets exceeding S$2,000,000 in value (where the value of the individual’s primary residence is either S$1,000,000 or the fair market value of the residence less any credit facility secured by the individual’s primary residence, whichever is lower); or
    • whose income in the preceding 12 months is not less than S$300,000; or
  • a corporation with net assets exceeding S$10,000,000.

The SFA contains a further segment of accredited investor as a party which has net financial assets exceeding S$1,000,000 in value (which includes deposits in banks, investment products such as capital markets products, spot foreign exchange contracts other than for the purposes of leveraged foreign exchange trading and any life policy).

Institutional investors include investors that are controlled or owned by the government or financial regulated institutions.

In general, retail customers are afforded the most protection and businesses must satisfy the most regulatory requirements (when compared to regulatory requirements for other categoties of customers) in order to be able to offer any products or services to customers. Business must fulfil fewer regulatory requirements to offer services or products to expert investors, accredited investors and institutional investors (eg, prospectus exemption provisions that apply to accredited and institutional investors).

Initial coin offerings

What rules and restrictions govern the conduct of, and investment in, initial coin offerings (ICOs)?

In general, offers of utility tokens are unregulated.

As for companies listed on the Singapore Exchange (SGX), the SGX has laid out the following guidelines for companies considering conducting ICOs:

  • Listed issuers who intend to conduct digital token sales must first consult with the SGX Regulation (SGX RegCo) and make all relevant disclosures thereto. Issuers will also need to provide legal opinion(s) on the nature of the digital tokens and an auditor opinion on the ICO’s accounting treatment.
  • The issuer must disclose details of the following information to its shareholders:
    • rationale for the ICO;
    • risks (operational and cybersecurity) arising from the ICO;
    • use of funds raised;
    • accounting and valuation treatments for the ICO;
    • know-your-customer checks to address money laundering and terrorist financing risks;
    • the accounting and valuation treatment for ICOs;
    • the use of existing issuer funds to conduct an ICO;
    • the financial impact on the issuer as a result of the token issuance; and
    • any impact on existing shareholders’ rights.
  • After an ICO has been conducted, listed issuers are still expected to keep their shareholders informed of material information, the development of the ICO and digital tokens on a timely basis, as well as the use of ICO proceeds. Further, these companies must also agree with their statutory auditors on the scope of an audit which should provide assurance that the ICO has been properly accounted for in their financial statements, and that associated risks have been adequately addressed and milestones on utilisation of funds raised have been adhered to.
Security token offerings

What rules and restrictions govern the conduct of, and investment in, security token offerings (STOs)?

‘Securities’ has a broad meaning under the SFA, and comprises shares, units in a business trust or any instrument conferring or representing a legal or beneficial ownership interest in a corporation, partnership or limited liability partnership; it excludes units of a collective investment scheme.

Where tokens are considered to be securities, securities-based derivatives contracts or units in a collective investment scheme, the issue of such tokens is subject to the prospectus requirements under Part XIII of the SFA, unless otherwise exempted. Prospectus disclosures must comply with the relevant schedules of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations.  Where tokens are considered to be units or derivatives of units in a business trust, no offer of such tokens may be made unless the business trust is a registered or recognised business trust

Depending on the issuer’s business activities and whether the token amounts to a capital markets product, the issuer may require a capital markets services licence (CMSL) for dealing in capital market products that are securities under the SFA, unless otherwise exempted. 

Holders of a CMSL that carry on the business of dealing in tokens that are capital markets products must comply with anti-money laundering and counter-terrorism financing requirements under Monetary Authority of Singapore (MAS) Notice SFA04-N02.

Intermediaries which facilitate offers or the issuance of such security tokens (including operators of platforms on which the security tokens are offered, issued or traded and those providing financial advice in respect of such tokens) may also be subject to licensing and other regulatory requirements under the SFA or the Financial Advisors Act (Cap 110).

Stablecoins

What rules and restrictions govern the issue of, and investment in, stablecoins?

If stablecoins are considered to be securities, securities-based derivatives contracts or units in a collective investment scheme, they are regulated under the SFA.

Where a stablecoin is regulated under the SFA, the rules and regulations stated above will apply.

For example, where an issuer of a stablecoin pegged to a currency must buy back tokens from holders, such stablecoin may constitute a debenture if the token represents the issuer’s indebtedness to the holder to pay back the holder the monetary value per token.

Further, the issuing of cryptocurrencies as a digital payment token service or an e-money issuance service will be regulated once the PSA comes into force. Stablecoins with values pegged to any fiat currency may fall within the definition of ‘e-money’ under the PSA, and those whose values are not pegged to any fiat currency may fall within the definition of a ‘digital payment token’.

Service providers which deal in or facilitate the exchange of DPTs are, unless otherwise exempted or excluded, required to hold a standard payment institution licence or a major payment institution licence, depending on whether the monthly average value of transactions accepted, processed or executed over a calendar year exceeds S$3 million or its equivalent in foreign currency.

The provider of an e-money issuance service will have to hold a major payment institution licence if the average daily float over a calendar year exceeds S$5 million or its equivalent in foreign currency.

Depending on the exact nature and attributes of a stablecoin, regulatory requirements on money lending and deposit taking should also be considered.

Airdrops

Are cryptoassets distributed by airdrop treated differently than other types of offering mechanisms?

No, cryptoassets distributed by airdrop are not treated differently from other types of offering mechanisms. The applicable regulatory regime depends on the nature and attributes of the cryptoasset.

If a cryptoasset falls within the SFA regime and depending on how the airdrop is done, the restrictions on and the market misconduct provisions under the SFA, the restrictions on solicitation under the PSA and the market misconduct provisions under the CTA should be considered.

Advertising and marketing

What laws and regulations govern the advertising and marketing of cryptoassets used for investment and financing?

The regulation of the advertising or marketing of a cryptoasset depends on whether the cryptoasset falls under any of the relevant laws.

Under the SFA, if the cryptoassets amount to securities, securities-based derivatives contracts or units in a collective investment scheme requiring a prospectus for the offer or intended offer, there can be no advertisement of the offer or publication that is likely to induce people to subscribe to the cryptoassets, unless the prospectus or prospectus exempt requirements are satisfied.

Further, if the cryptoassets amount to capital markets products under the SFA, holders of a CMSL and their representatives should be mindful as to whether the advertising or marketing of a cryptoasset amount to a ‘product advertisement’ under the Securities and Futures (Licensing and Conduct of Business) Regulations. Such marketing under the regulations must be done in compliance with Section 46(2) of the regulations, including the requirements that the advertisement not be false or misleading and that it provides a fair and balanced view of the cryptoasset to which it relates.

If a cryptoasset falls under the upcoming PSA regime, a business that wishes to advertise or market to the Singapore public in relation to the cryptoasset must be licensed under the PSA before doing so. If such a business is not licensed under or is exempt from the PSA regime, the business cannot carry out such activity.

Trading restrictions

Are investors in an ICO/STO/stablecoin subject to any restrictions on their trading after the initial offering?

In general, investors in ICOs and stablecoins which do not amount to securities, securities-based derivatives contracts or units in a collective investment scheme are not subject to regulations imposing trading restrictions.

For offers of investments under the SFA resulting in the listing of STOs on the SGX, the SGX listing rules prescribe certain moratorium requirements for:

  • controlling shareholders and their associates;
  • executive directors with an interest in 5% or more of the issued share capital; and
  • pre-listing investors which hold 5% or more of the issuer’s post-invitation issued share capital.
Crowdfunding

How are crowdfunding and cryptoasset offerings treated differently under the law?

Offers of utility tokens are unregulated. Crowdfunding and cryptoasset offerings that amount to offers of securities, securities-based derivatives contracts or units in a collective investment scheme, are subject to the prospectus requirements under the SFA, unless otherwise exempted.  

Transfer agents and share registrars

What laws and regulations govern cryptoasset transfer agents and share registrars?

General company law and business conduct rules apply to share registrars.

Depending on the business activity of the transfer agent, if the cryptoasset amounts to a form of securities, a securities-based derivatives contract that is not a futures contract or a unit in a collective investment scheme, the transfer agent may be required to hold a CMSL for providing custodial services.

Holders of CMSLs are required to comply with:

  • the SFA;
  • applicable subsidiary legislation relating to business conduct rules;
  • financial and margin requirements;
  • MAS notices on anti-money laundering and counter-terrorism financing (AML/CFT) requirements; and
  • risk-based capital adequacy requirements.  
Anti-money laundering and know-your-customer compliance

What anti-money laundering (AML) and know-your-customer (KYC) requirements and guidelines apply to the offering of cryptoassets?

Financial institutions regulated by the MAS must observe the MAS AML/CFT requirements, regardless of whether transactions are conducted in fiat or cryptocurrencies. Such financial institutions must put in place robust controls to detect and deter the flow of illicit funds through Singapore's financial system.

In general, the AML/CFT requirements concern:

  • risk identification, assessment and rmitigation;
  • customer due diligence (including KYC for beneficial owners);
  • reliance on third parties;
  • correspondent accounts;
  • record keeping;
  • internal policies, procedures and controls; and
  • compliance, account review, audit and training.

All persons must also abide by the following:

  • obligations to report suspicious transactions to the Suspicious Transactions Reporting Office, part of the Commercial Affairs Department of the Singapore Police Force pursuant to Section 39 of the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (Cap 65A) (CDSA); and
  • prohibitions on dealing with or providing financial services to designated individuals and entities pursuant to the Terrorism (Suppression of Financing) Act (Cap 325)(TSOFA) and various regulations giving effect to United Nations Security Council Resolutions.
Sanctions and Financial Action Task Force compliance

What laws and regulations apply in the context of cryptoassets to enforce government sanctions, anti-terrorism financing principles, and Financial Action Task Force (FATF) standards?

Singapore is a member of the FATF and takes reference from the norms set by the FATF. With regard to cryptoassets, the MAS takes guidance from, among others, FATF’s June 2019 Guidance for a Risk-Based Approach for Virtual Assets and Virtual Asset Service Providers.

Broadly speaking, the CDSA and the TSOFA apply. The Serious Crimes and Counter Terrorism (Miscellaneous Amendments) Act, which took effect on 1 April 2019, amended the CDSA and the TSOFA to further strengthen Singapore’s AML/CFT frameworks to tackle such offences more effectively. The amendments, which took reference from the FATF recommendations:

  • strengthen the government’s ability to enforce and prosecute offences;
  • enhance penalties for AML/CFT offences; and
  • facilitate the sharing of financial intelligence with overseas jurisdictions.

In its regulation of financial institutions in Singapore MAS also gives effect to targeted financial sanctions under the United Nations Security Council Resolutions through the issue of regulations prohibiting financial services, financial assistances and transfers of assets to designated individuals and entities.

 

Law stated date

Correct on

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26 November 2019.