First-step analysis: cryptoasset trading in Singapore

Cryptoasset trading

What rules and restrictions govern the exchange of fiat currency and cryptoassets?

The exchange of fiat currency and cryptoassets requires a standard payment institution or major payment institution licence under the Payment Services Act (PS Act), when carried on as a business. This is the case, even if the entity conducting the exchange does not come into possession of the client’s funds.

Such licensed digital payment token (DPT) service providers are required to comply with consumer protection measures laid out by the Monetary Authority of Singapore (MAS), such as segregating customer assets from the licensed entity’s own assets, and maintaining adequate risk management systems to safeguard customers’ assets and implementing clear complaint handling processes. Furthermore, licensed DPT service providers are also expected to comply with MAS guidelines and notices pertaining to anti-money laundering (AML)/countering the financing of terrorism (CFT) compliance.

Where are investors allowed to trade cryptoassets? How are exchanges, alternative trading systems and secondary markets for cryptoassets regulated?

Exchanges, alternative trading systems and secondary markets for cryptoassets may be regulated under the PS Act and/or the Securities and Futures Act (SFA) – depending on the cryptoassets traded. Exchanges enabling trade in cryptoassets that constitute capital markets products (CMPs), must be registered under the SFA to operate an organised market either as an approved exchange or recognised market operator. Where the exchange enables trade in cryptoassets that constitute digital payment tokens (DPTs), such exchange will require a licence under the PS Act to provide a DPT service.

How are cryptoasset custodians regulated?

Cryptoasset custodians must be licensed under the PS Act if they provide safeguarding services where they have control over the DPTs, unless exempted. MAS has clarified that control over one key in a multi-sig wallet constitutes 'control' over the multi-sig wallet. Licensed entities must comply with AML/CFT measures, maintain segregated accounts for client assets, and adhere to cybersecurity standards set by MAS.

Custody of security tokens or other CMPs will require a capital markets services (CMS) licence to provide custody services under the SFA and compliance with AML/KYC and base capital requirements set by MAS.

How are cryptoasset broker-dealers regulated?

Similar to cryptoasset custodians, cryptoasset broker-dealers operating in Singapore are regulated based on the nature of the assets traded. If dealing in DPTs, they will generally need to obtain a licence under the PS Act as a major payment institution or standard payment institution, and be subject to the relevant AML/KYC, cybersecurity, and risk management requirements. For security tokens, broker-dealers require a CMS licence under the SFA to engage in regulated activities such as dealing in capital markets products. They will also be subject to MAS’s mandatory disclosure, client asset protection, and compliance controls.

What is the legal status of decentralised cryptoasset exchanges?

If the decentralised cryptoasset exchange enables trade in cryptoassets which constitute DPTs, depending on the structure of the decentralised cryptoasset exchange, it may require a licence under the PS Act if it is considered to be providing a service which induces or attempts to induce any person to enter into an agreement to purchase or sell DPTs even where it does not come into possession of the DPTs.

What is the legal status of peer-to-peer (person-to-person) transfers of cryptoassets?

Peer-to-peer transfers of cryptoassets are not specifically prohibited. However, if conducted with frequency and for business, they may constitute dealing in, transmitting, or arranging the transmission of DPTs, in which case a PS Act licence may be required.

Furthermore, those carrying out such peer-to-peer transfers of cryptoassets should be mindful of their obligations under the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (CDSA) and Terrorism (Suppression of Financing) Act (TSOFA) as they are, among other things, obliged to file suspicious transaction reports (STRs), should not proliferate proceeds obtained from criminal activities, and should not be dealing with designated persons or entities.

Does the law permit trading cryptoassets with anonymous parties?

Generally, there is no express prohibition against trading with anonymous parties. However, the CDSA, TSOFA and sanctions compliance laws apply generally to all individuals and entities in Singapore. A breach of sanction laws is a fact-based determination and not tempered by any defence of reasonable diligence. If it turns out that the anonymous party was a sanctioned person, then the person or entity that had dealt with such a sanctioned person may be in breach of sanctions laws.

Regulated financial institutions are, however, generally prohibited from trading with anonymous parties as they are obliged to perform customer due diligence (CDD), screen counterparties, and apply enhanced measures in higher-risk scenarios (such as where there is the possibility of dealing with anonymous parties who may be sanctioned individuals or entities).

Are foreign cryptocurrency exchanges subject to your jurisdiction’s laws and regulations governing cryptoasset exchanges?

Yes, if they conduct regulated activities in or into Singapore. The SFA applies extra-territorially where a person engages in SFA-regulated activities outside Singapore that have a 'substantial and reasonably foreseeable effect in Singapore'. Such persons can be prosecuted for committing an offence under the SFA (eg, carrying out regulated activities without a capital markets services licence) even where they do so outside of Singapore. However, MAS has clarified that it does not intend to regulate activities carried out by a foreign entity wholly outside Singapore that involve persons in Singapore, where the foreign entity is responding to unsolicited enquiries or applications from persons in Singapore.

Similarly, if the foreign cryptocurrency exchanges are carrying on a business of providing a DPT service in Singapore, for instance, where the exchange is providing the DPT service with system, continuity and repetition from Singapore, or to Singapore users, then there is a possibility that the foreign cryptocurrency exchange may be required to obtain a PS Act licence.

Notably, the PS Act also prohibits soliciting DPT services to the Singapore public if such an entity is not a DPT service provider licensed under the PS Act. Foreign cryptocurrency exchanges should note that targeted ads to Singapore users may cause such an exchange to be in breach of the PS Act if it is not licensed under the PS Act.

Under what circumstances may a citizen of your jurisdiction lawfully exchange cryptoassets on a foreign exchange?

Personal use of foreign exchanges is generally not restricted.

Do any tax liabilities arise in the exchange of cryptoassets (for both other cryptoassets and fiat currencies)?

Generally, Singapore has no capital gains tax. The Inland Revenue Authority of Singapore has clarified that the exchange of DPTs for fiat currency or other DPTs constitutes an exempt supply in respect of Singapore’s Goods and Services Tax (GST). No GST will be charged on such an exchange. Furthermore, the use of cryptoassets as payment for goods or services will also not be construed as a supply of services; those who accept cryptoassets as payment for goods or services do not separately need to account for GST for such use (though they will have to account for GST on the goods and services provided separately).