Following the SEC’s report on July 25, 2017, which concluded that certain digital token sales could be deemed securities under the U.S. federal securities law, the Monetary Authority of Singapore (MAS) issued a statement on August 1, 2017 clarifying its regulatory position on the offer of digital tokens in Singapore.
The MAS draws a clear distinction between digital tokens, being “a cryptographically-secured representation of a token-holder's rights to receive a benefit or to perform specified functions” and virtual currency, as “one particular type of digital token, which typically functions as a medium of exchange, a unit of account, or a store of value.” The MAS goes on to state that if the new digital token represents securities (as opposed to mere virtual currency), the initial coin offering and the subsequent trading of the new coins will likely need to meet the requirements set out in the Securities and Futures Act and the Financial Advisers Act, as well as the anti-money laundering and counter financing of terrorism requirements.
It is evident that the MAS has adopted a similar position to the SEC – that it is focused on the substance of the transaction, and where the digital tokens are essentially equivalent to securities, it should fall under the same regulatory procedures as if such tokens were conventional securities. In practice, this means that companies looking to issue digital tokens that are in effect structured as forms of securities must issue a prospectus as part of the offer unless applicable exemptions apply.
The MAS went on further to state that platforms facilitating secondary trading of such tokens would also have to be approved or recognised by MAS as an approved exchange or recognised market operator, respectively.
Given the nascent development of the ICO industry, the MAS has declined to make any definitive conclusions on ICOs (or, interestingly, any earlier ICOs by Singapore companies), instead putting the onus on issuers and intermediaries to obtain independent legal advice and consult the MAS where appropriate