The clampdown demonstrates its continued commitment and vigilance towards policing the trading or offering of Digital Tokens which breach securities regulations.

On 24 May 2018, the Monetary Authority of Singapore (“MAS”) issued a first-of-its-kind official media release stating that it had taken action against eight Digital Token Exchanges, and directed a Token Issuer to cease its token offering, leading to the proceeds of such issuance being swiftly returned to local purchasers. These enforcement actions were taken in response to securities law violations under the Securities and Futures Act (“SFA”).

MAS also reiterated that without first obtaining the requisite approvals or recognition by MAS, all digital token issuers, intermediaries and platforms that offer, facilitate or trade digital tokens are not allowed to deal in tokens which adopt elements of a security or futures contract, as defined in the SFA.

Such publicised efforts by MAS to clamp down on contraventions of the SFA serve to demonstrate its continued commitment and vigilance towards policing the trading or offering of Digital Tokens which breach securities regulations. Does this in turn mean the heralding of a new wave of Crypto-conservatism by the local authorities?

We think not.

In wielding its regulatory sword through this targeted exercise of reproval, MAS has merely re-affirmed its rhetoric (and thus-far consistent regulatory position) on Cryptocurrencies: only Digital Tokens which are captured under the definition of “Securities” under the SFA will fall under its purview. By extension, Digital Tokens which do not represent securities or futures contracts may be traded or offered freely – beyond the regulatory ambit of MAS.

MAS has relied upon the clearly delineated legal framework of the SFA as the fulcrum of its enforcement activities, and this is a positive step towards establishing a clear, coherent and consistent environment for transacting in Digital Tokens. This position is plainly encapsulated in a statement by Mr Lee Boon Ngiap (Assistant Managing Director (Capital Markets), MAS), where he opines that MAS does not “see a need to restrict [digital token exchanges and digital token offerings in Singapore] if they are bona fide businesses” and the Digital Tokens are not deemed as securities under the SFA. Moreover, as further indication of its progressive and affirmative stance, MAS has already tabled public consultations on the Recognised Market Operators Regime and the Payment Services Bill, which will likely provide even deeper (and more welcome) clarity on the regime for regulating the business of peer-to-peer and trading and Digital Token exchanges.

Notably, MAS’ cautionary (rather than punitive) approach also aligns towards the posture of the Hong Kong Securities and Futures Commission (“SFC”), which had earlier issued warnings to seven digital token exchanges and seven ICO issuers. Remedial actions included the delisting of certain digital tokens from exchanges and the suspension of sales to Hong Kong-based investors. In contrast, the United States Securities and Exchange Commission (“SEC”) has adopted a more interventionist approach. It was reported in February and March 2018 that the SEC has issued subpoenas to multiple individuals and companies involved in ICOs as well as hedge funds involved in cryptocurrencies.

Comparatively, it appears that, for now, MAS is adopting a relatively moderate approach towards regulation and enforcement, with an apparent disposition towards guiding and cautioning errant operators, rather than clamping down on this burgeoning space and appearing to stifle innovation. Through its financial education initiatives, MAS has also been conscientiously educating the public on the risks posed by unregulated Digital Tokens. A balanced, nuanced, and measured approach toward cryptocurrency regulation and enforcement will certainly be positive news for the continued growth of local blockchain-based enterprises. However, it is not expected that any leniency or laxness will be shown by the relevant authorities should any threat of fraudulent activity or money laundering arise.

This article was co-authored by Yingyu Wang and Gary Tse.