Regulation
Singapore’s difficult development path as a crypto hub
The author of this article, which examines how Singapore’s regulators handle the cryptocurrency and digital asset sector, argues that the Asian city-state offers a model for jurisdictions looking to cautiously introduce such entities into financial systems.
In this article, Bryan Tan, partner at the law firm Reed Smith and a member of its dedicated cryptocurrency and digital assets group, On-Chain, discuss the state of regulatory and business development in Singapore. The editors are happy to share these views; usual editorial disclaimers apply. Join the conversation! Email tom.burroughes@wealthbriefing.com
Singapore, renowned for its robust financial sector and progressive regulatory environment, has emerged as a major hub for blockchain and cryptocurrency technology. The country’s strategic approach, characterized by clear regulations and an innovative mindset, has positioned it favorably within the global cryptocurrency ecosystem. With proactive regulatory frameworks and a supportive business environment, Singapore’s emphasis on fintech innovation, combined with its strategic geographic location, has attracted numerous blockchain startups and established cryptocurrency firms.
The cornerstone of Singapore’s crypto-friendly environment is its clear and comprehensive regulatory framework. The Payment Services Act (PSA), enacted in January 2020, is a landmark piece of legislation that provides regulatory clarity for cryptocurrency operations. The PSA classifies various payment activities, including digital payment token services, under a unified regulatory framework. This law requires cryptocurrency businesses to obtain licenses, ensuring compliance with anti-money laundering (AML) and counter-terrorism (CTF) regulations.
Singapore’s commitment to fostering innovation is evident through initiatives such as the Singapore FinTech Festival (SFF), which provides a platform for collaboration between global fintech and cryptocurrency stakeholders. Introduced in 2016, it is the largest of its kind. The country also boasts an advanced technological infrastructure, including high-speed internet and robust cybersecurity measures, which are essential to the growth of the cryptocurrency industry.
Who goes Slow and steady wins?
THE Monetary Authority of Singapore (MAS), the country’s central bank and financial regulator, has taken a balanced and progressive approach to bitcoin and cryptocurrencies, as opposed to one of unbridled enthusiasm or unwarranted exuberance. MAS clearly recognizes the potential of blockchain technology and digital currencies, while highlighting the need for regulation to mitigate risks related to cryptocurrencies.
To this end, MAS has issued clear guidelines on the use and regulation of cryptocurrencies. Distinguishes between utility tokens, which provide access to a service, and security tokens, which represent ownership or debt. This differentiation helps apply appropriate regulations based on the nature of the token. Likewise, applications for PSA licenses have been closely scrutinized, with many falling by the wayside.
While MAS supports innovation in the cryptocurrency industry, it also regularly issues warnings to the public about the risks associated with cryptocurrency investments. These warnings highlight the volatile nature of digital assets and the importance of conducting thorough research before investing. Strict restrictions on advertising have also been put in place.
Retail access to cryptocurrencies in Singapore is relatively advanced, facilitated by a growing number of cryptocurrency exchanges and service providers. However, MAS argues that cryptocurrency speculation is not suitable for the retail market and ensures that these services are regulated to protect consumers.
Singapore is home to several renowned cryptocurrency exchanges that provide retail investors with easy access to buying, selling and trading digital assets. These platforms are required to comply with the PSA, ensuring they operate in a regulated environment that prioritizes consumer protection.
One of the most stringent regulatory regimes in the world
Nonetheless, the MAS is determined to maintain and even strengthen its current stance on cryptocurrencies. In a response published in the Financial Times in September 2023, the MAS agreed “that cryptocurrencies could be misused as a conduit for money laundering and pose risks to retail customers. The MAS only licenses cryptocurrency players if they have robust anti-money laundering controls; most applicants have been unsuccessful.”
He added that he “has also proposed and consulted on a wide range of regulatory measures to mitigate the risks posed by cryptocurrencies to retail customers. As these measures are progressively implemented from the end of this year onwards, Singapore will have one of the strictest regulatory regimes governing retail access to cryptocurrencies in the world.”
Perhaps this position is confirmed by his view of the Bitcoin ETF (and the upcoming Ethereum ETF). The US, UK and Hong Kong, as well as Thailand, have approved it in some form for their markets, while Singapore has maintained its position.
On the other hand, MAS favors distributed ledger technology or blockchain, the technology behind cryptocurrencies. MAS’s Ubin project is a testament to its proactive approach. This collaborative project with the financial sector aims to explore the use of blockchain for clearing and settling payments and securities. The successful completion of the multiple phases of the Ubin project has showcased the potential of blockchain technology to improve efficiency and reduce costs in financial transactions.
The overall picture
Compared to other jurisdictions, Singapore’s approach to cryptocurrency regulation and retail access stands out for its clarity and balance. In the United States, the regulatory landscape for cryptocurrencies is fragmented, with different states having different regulations. The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) play significant roles in regulating crypto assets, but the lack of a unified national framework creates uncertainties. Retail access is widespread, with major exchanges operating under strict compliance measures. However, regulatory ambiguity can be a deterrent to new entrants.
The European Union is working towards a comprehensive regulatory framework with the proposed Markets in Crypto-Assets (MiCA) regulation. MiCA aims to create a harmonized approach across EU member states, providing legal certainty for cryptocurrency firms and protection for investors. Retail access to cryptocurrencies is growing, with platforms serving a large user base. However, the regulatory environment is still evolving and full implementation of MiCA is awaited.
Japan has been at the forefront of cryptocurrency regulation, being one of the first countries to recognize bitcoin as a legal payment method. Financial Services Agency (FSA) oversees the regulation of cryptocurrency exchanges, ensuring strict compliance with AML and CTF regulations. Retail access in Japan is robust, with wide acceptance of cryptocurrencies for various transactions. The clear regulatory environment has fostered a thriving cryptocurrency ecosystem, but the stringent requirements can pose a barrier to entry for small businesses.
Hong Kong, a major financial center in Asia, has a more laissez-faire approach than Singapore. Securities and Futures Commission (SFC) regulates cryptocurrency exchanges that offer trading in at least one security token, while other crypto assets remain largely unregulated. Retail access is facilitated by numerous exchanges and OTC platforms.
Singapore’s strategic approach to cryptocurrency regulation, characterized by clear and comprehensive frameworks, proactive innovation support and a balanced stance from MAS, has made it a leading cryptocurrency hub for serious players. The country’s commitment to promoting a safe and transparent environment for both businesses and retail investors sets it apart from other jurisdictions.
As the regulatory landscape continues to evolve globally, Singapore’s emphasis on clarity, consumer protection, and technological advancement positions it as a potential role model for other nations looking to cautiously integrate cryptocurrencies into their financial ecosystems.