Fiat currency transactions
What rules and restrictions govern the exchange of fiat currency and cryptoassets?
Until recently, fiat currency exchanges involving the business of buying or selling foreign currency notes were licensed as a money-changing business under the Money-Changing and Remittance Businesses Act. The same regime applied to businesses that accept money to transmit it to persons resident outside Singapore must be licensed. Since 28 January 2020 when the Payment Services Act (PSA) took effect, the licensing of these two activities have now fallen under the PSA regime.
Any entity that provides the service of dealing in or facilitating the exchange of digital payment tokens (DPTs), and any entity that provides the service of issuing e-money to any person to allow them to make payment transactions, must hold a standard payment institution licence or a major payment institution licence under the PSA, depending on whether the monthly average value of transactions accepted, processed or executed over a calendar year exceeds S$3 million or its equivalent in foreign currency.
Exchanges (whether electronic or otherwise) which facilitate offers to buy or sell cryptoassets that are considered to be derivatives contracts, securities or units in a collective investment scheme may be considered to be operating an ‘organised market’ under the Securities and Futures Act (SFA). Such exchanges must be conducted by an approved exchange or a recognised market operator before beginning operations.
Exchanges and secondary markets
Where are investors allowed to trade cryptoassets? How are exchanges, alternative trading systems and secondary markets for cryptoassets regulated?
There is currently no legislation prohibiting investors from trading cryptoassets. Whether cryptoasset exchanges must be regulated under the SFA to operate an organised market either as an approved exchange or recognised market operator or as a digital payment token service under the PSA, depends on the kind of cryptoassets that are traded on these exchanges.
To decide whether a market operator should be approved as an approved exchange or recognised market operator, the Monetary Authority of Singapore (MAS) considers certain criteria, including:
- the likelihood that a disruption in the operations of such market operator could trigger further systemic disruptions to or affect public confidence in Singapore’s capital markets or financial system; and
- the ability of the market operator to meet the obligations of an approved exchange.
How are cryptoasset custodians regulated?
Depending on the business activity of the cryptoasset custodian, and if the cryptoassets amount to securities, securities-based derivatives contracts that are not futures contracts or units in a collective investment scheme, the custodian may be required under the SFA to hold a capital markets services licence (CMSL) for providing custodial services unless otherwise exempted. In July 2020, the MAS consulted on a new Omnibus Act that will put under its oversight companies such as cryptoasset custody services providers for anti-money laundering and counter-terrorism financing (AML/CFT).
How are cryptoasset broker-dealers regulated?
Depending on the business activity of the cryptoasset broker-dealer, and if the cryptoassets amount to securities, units in a collective investment scheme, derivatives contracts or spot foreign exchange contracts for leveraged foreign exchange trading, the custodian may be required under the SFA to hold a CMSL for dealing in capital markets products unless otherwise exempted. In July 2020, the MAS consulted on a new Omnibus Act that will put under its oversight companies such as cryptoasset brokering service providers for anti-money laundering and counter-terrorism financing (AML/CFT).
What is the legal status of decentralised cryptoasset exchanges?
If the cryptoasset offered on the exchange amounts to a DPT, the entity which facilitates such exchange must obtain a licence under the PSA. Service providers which deal in or facilitate the exchange of DPTs are, unless otherwise exempted or excluded, required to hold a standard payment institution licence or a major payment institution licence, depending on whether the monthly average value of transactions accepted, processed or executed over a calendar year exceeds S$3 million or its equivalent in foreign currency.
Depending on the structure and operations…