In April, Singapore extended its oversight of virtual assets with a law that expands its cryptocurrency regulations to companies that have a local presence in the market but offer digital token services outside of Singapore. The Financial Services and Markets Bill 2022, which has gained approval from lawmakers, marks higher regulatory scrutiny on digital assets.
While cryptocurrency operations that target the local market are regulated by the central bank, up until now, those who provide services outside Singapore had not been subjected to the same scrutiny.
But the approach is now changing. Alvin Tan, a board member of the MAS, said that Singapore could be “exposed to reputational risks brought by digital token service providers created in Singapore, and which provide services relating to virtual assets such as bitcoin outside Singapore,” according to a report in Asia Nikkei Asia.
This comes at a time when Asian governments have been tightening oversight on cryptocurrency. Singapore itself published guidelines in early 2022 instructing the market to halt the adverting of offerings to retail investors in public spaces, citing concerns about the “risky” nature of such investments. Meanwhile, Thailand recently issued a ban against payments using cryptocurrencies and other digital assets.
Mike Chiam, a partner at Singapore law firm PDLegal, says an extension of regulatory oversight for cryptocurrencies has been in the works for some time.
“The introduction of omnibus legislation to supervise and regulate Virtual Asset Service Providers or VASPs was discussed on or about December 2019 when FATF released guidance on regulating virtual asset (VA) activities. This was anticipated to be passed into law in 2020-2021, so, it appears that the regulator took more time to consider putting in place the additional restrictions,” he notes.
Essentially, Chiam says, Singapore’s regulator “needed to have administration, supervisory and regulatory powers — including the right to issue prohibition orders,” in order to safeguard reputational risks of VASPs incorporated and registered in Singapore, “but operating virtual asset activities outside of Singapore — or globally.”
Additionally, says Chiam, MAS proposes to issue prohibition orders based on specified criteria “similar to the conditions for key executives in Singapore’s financial institutions.”
“MAS is also imposing requirements to mitigate cyberattacks, technology risks, critical system and administration risks in relation to digital token services and VASPs,” Chiam says.
Striking the right balance is critical for regulators. Chiam notes there have been “mixed reviews from the crypto-community and professionals in the crypto markets.”
“On the one hand, Singapore has been paving the regulatory path, a regulation-lite innovation space for fintech entrepreneurs with the fintech regulatory sandbox since 2017/2018,” he says.
“Singapore has been consistently seen as ‘crypto-friendly’ and more traditional financial institutions ‘TradFi’ players have started taking inroads to develop crypto and blockchain capabili-ties.”
There is speculation in the market and in media, that the developments could result in a boost in Dubai, which has courted blockchain and cryptocurrency firms recently. Chiam says that some market players have withdrawn from Singapore and announced their plans to move to the Middle East “where the regulatory status is less defined,” says Chiam, adding that “jurisdiction shopping” is a common theme in the fintech and crypto industry.
Chiam says digital assets, including NFTs, is gaining popularity amongst the young millennials in Singapore, with the Straits Times reporting that close to 16 percent of Singaporeans own crypto-currency.
“The incoming legislation will boost awareness of technological risks and jurisdictional risks amongst users of DT services and VASPs,” Chiam says.