The bumpy path of Singapore’s development as a cryptocurrency center

The author of this article, who looks at how Singapore regulators manage the cryptocurrency and digital asset space, argues that the Asian city-state can be a model for jurisdictions that want to carefully introduce such entities into financial systems.

In this article, Bryan Tan, partner at law firm Reed Smith and member of its dedicated cryptocurrency and digital asset group, On-Chain, talks about the state of regulation and business development in Singapore. The editors are pleased to share these views; the usual editorial disclaimers apply. Join the conversation! Email [email protected]

Known for its robust financial sector and progressive regulatory environment, Singapore has emerged as a significant hub for cryptocurrencies and blockchain technology. The country’s strategic approach, characterized by clear regulations and an innovative mindset, has earned it a favorable position in the global cryptocurrency ecosystem. With a proactive regulatory framework and a favorable business environment, Singapore’s focus on fintech innovation, coupled with its strategic geographic location, has attracted many blockchain startups and established cryptocurrency companies.

Singapore’s cryptocurrency-friendly environment is underpinned by a clear and comprehensive regulatory framework. The Payment Services Act (PSA), passed in January 2020, is a key 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 Act requires cryptocurrency businesses to obtain a license, ensuring compliance with anti-money laundering (AML) and counter-terrorist financing (CTF) regulations.

Singapore’s commitment to promoting innovation is evident in initiatives such as the Singapore FinTech Festival (SFF), which provides a collaborative platform for global fintech and crypto stakeholders. Introduced in 2016, it is the largest event of this type. The country also boasts advanced technological infrastructure, including high-speed internet and solid cybersecurity measures, which are essential to the development of the crypto sector.

Slow and steady wins the race?
The Monetary Authority of Singapore (MAS), the country’s central bank and financial market regulator, has taken a balanced and progressive approach to bitcoin and cryptocurrencies, as opposed to unbridled enthusiasm or unjustified euphoria. The MAS clearly sees the potential of blockchain technology and digital currencies, while also emphasizing the need for regulation to mitigate the risks associated with cryptocurrencies.

To this end, the MAS has issued clear guidelines on the use and regulation of cryptocurrencies. It distinguishes between utility tokens, which provide access to a service, and security tokens, which represent ownership or debt. This distinction helps to apply appropriate regulations based on the nature of the token. Similarly, applications for PSA licenses have been scrutinized, with many being rejected.

While MAS supports cryptocurrency innovation, it also issues regular 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 advertising restrictions were also introduced.

Retail access to cryptocurrencies in Singapore is relatively advanced, facilitated by the growing number of crypto exchanges and service providers. However, the MAS takes the position 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 reputable cryptocurrency exchanges that provide retail investors with easy access to buy, sell, and trade digital assets. These platforms are required to adhere to the PSA, ensuring they operate in a regulated environment where consumer protection is a priority.

One of the strictest regulatory regimes in the world
Nevertheless, the MAS remains steadfastly determined to maintain and even harden its current stance on cryptocurrencies. In a response published in “Financial Times”. In September 2023, the MAS agreed that “cryptocurrencies can be misused as a conduit for money laundering and also pose risks to retail customers. MAS only grants licenses to cryptocurrency players if they have robust anti-money laundering controls; most applicants have not been successful.”

He added that he has “also proposed and consulted on a wide range of regulatory measures to mitigate the risks that cryptocurrencies pose to retail customers. As these measures are gradually implemented, Singapore will have one of the strictest regulatory regimes in the world governing retail access to cryptocurrencies from the end of this year.”

Perhaps this stance is supported by his views on the bitcoin ETF (and upcoming ethereum ETF). The US, UK, and Hong Kong, as well as Thailand, have all approved it in some form in their markets, while Singapore has maintained its position.

MAS, on the other hand, prefers distributed ledger or blockchain technology, the technology that underlies cryptocurrencies. The Ubin MAS project is proof of its proactive approach. This joint project with the financial sector aims to explore the use of blockchain to settle and regulate payments and securities. The successful completion of multiple phases of the Ubin project demonstrated the potential of blockchain technology to increase efficiency and reduce the costs of financial transactions.

Global picture
Compared to other jurisdictions, Singapore’s approach to cryptocurrency regulation and retail access stands out for its clarity and balance. In the US, the cryptocurrency regulatory landscape 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 cryptocurrency activities, but the lack of a unified national framework creates uncertainty. Retail access is widespread, with major exchanges operating under strict compliance measures. However, regulatory ambiguity can be discouraging for new entrants.

The European Union is working on a comprehensive regulatory framework through the proposed Markets in Crypto-Assets Regulation (MiCA). MiCA aims to create a harmonized approach across EU member states, providing legal certainty for cryptocurrency businesses and protection for investors. Retail access to cryptocurrencies is growing, and platforms serve a large user base. However, the regulatory environment is still evolving, and full implementation of MiCA is awaited.

Japan is at the forefront of cryptocurrency regulation, being one of the first countries to recognize bitcoin as a legal payment method. The Financial Services Agency (FSA) oversees the regulation of cryptocurrency exchanges, ensuring rigorous compliance with AML and CTF regulations. Retail access in Japan is solid, with widespread acceptance of cryptocurrencies for a variety of transactions. A clear regulatory environment supports a thriving cryptocurrency ecosystem, but stringent requirements can be a barrier to entry for smaller businesses.

Hong Kong, a major financial center in Asia, has a more laissez-faire approach compared to Singapore. The Securities and Futures Commission (SFC) regulates cryptocurrency exchanges that offer trading in one or more security tokens, while other crypto activities remain largely unregulated. Retail access is facilitated by numerous exchanges and OTC platforms.

Singapore’s strategic approach to cryptocurrency regulation, characterised by a clear and comprehensive framework, proactive support for innovation and a balanced stance by the MAS, has made it a leading cryptocurrency hub for serious players. The country’s commitment to creating a safe and transparent environment for both businesses and retail investors sets it apart from other jurisdictions.

While the regulatory landscape is constantly evolving around the world, Singapore’s emphasis on transparency, consumer protection and technological advancement positions it as a potential model for other countries looking to carefully integrate cryptocurrencies into their financial ecosystems.