Shortly after the SEC’s report on digital tokens, the Monetary Authority of Singapore (MAS) has clarified its regulatory stance on the offer or issue of digital tokens in Singapore and has also released a joint statement with the Commercial Affairs Department on the risks associated with initial coin offerings (ICOs). Singapore is a popular jurisdiction for ICOs, in part due to its status as a leading fintech hub in Asia.
Broadly, MAS identified key risks for investors assessing ICOs to include risks relating to: foreign and online operators, sellers without a proven track record, insufficient secondary market liquidity, highly speculative investments, investments promising high returns and money laundering and terrorist financing. Significantly, the joint statement suggested that investors should only deal with firms licensed by MAS to capitalise on the “protection afforded under the laws administered by MAS”.
While MAS has taken the position of not regulating virtual currencies, it noted that digital tokens have evolved beyond just functioning as a virtual currency and that tokens that constitute products under the Securities and Futures Act (Cap. 289) (SFA) will be regulated. This includes tokens that represent ownership or a security interest as well as tokens that represent a debt owed by an issuer, considered a debenture under the SFA.
Where digital tokens fall within the scope of the SFA, token issuers would be required to lodge and register a prospectus with MAS prior to the offer unless exempted. Similarly, issuers or intermediaries of such tokens would also be subject to licensing requirements unless exempted and the platforms facilitating secondary trading of these tokens would have to be approved by MAS as an exchange or market operator under the SFA.
Going forward, MAS is assessing how to regulate money laundering and terror financing risks associated with digital tokens whose function extends beyond acting solely as a virtual currency. This poses another regulatory issue with the potential choice of Singapore as a jurisdiction for the conduct of a tokensale.