Eternity Law International — News — Regulation of Crypto Exchanges in Singapore

Regulation of Crypto Exchanges in Singapore

Published:
December 24, 2020

In this article, we are going to look into the Monetary Authority of Singapore’s regulation of the Digital Payment Token Service Providers activities.

Key provisions:

  • Legislative Basis: Payment Services Act (PSA) 2019, MAS Notice PSN02, Consultation Paper on a New Omnibus Act for the Financial Sector.
  • Financial regulator: Monetary Authority of the Singapore (MAS).
  • FIU: Suspicious Transaction Reporting Service (STRO).
  • Legal statues of payment tokens: Digital assets do not considered as a legal tender and are subject to taxation as a “commodity”.
  • Definition of a holder of Crypto Exchange license – Digital Payment Token (DPT) Service Provider.

Introductory part

For an extensive stretch of time, Singapore has taken a genuinely reformist viewpoint with respect to the possession and exchanging of crypto assets, which were legally classified as “commodity”.

In this line, in 2016 Singapore has adopted a program aimed on at the development of electronic payments, which is called “Society of Electronic Payments”.

In 2019, the Singapore Monetary Authority (MAS), the public financial regulator and the national bank, has passed the Payment Services Act (PSA) to reduce the probability of systematic money trafficking in the crypto industry and the risks of financing the terrorist operations by the means of crypto assets. On July 21, 2020, the Consultation Paper on a New Omnibus Act for the Financial Sector was approved, in accordance with the Paper Singapore will enhance cooperation with the FATF in this field. The Paper regulates abroad activities of Singapore-based DPT Service Providers, which are obliged to complete abroad activity in adherence to the same legal regime as applied in Singapore.

Payment Services Act 2019

The Payment Services Act (PSA) regulation covers not only the traditional payment institutions, but also crypto exchanges and wallets. The Act has made an update of the regulatory framework applicable to payments services in Singapore, as a result certainty and security in this field was effectively enhanced.

The PSA regulates provision of the following services:

  • account issuance service;
  • domestic money transfer service;
  • cross-border money transfer service;
  • merchant acquisition service;
  • e-money issuance service;
  • digital payment token service;
  • money-changing service.

Notice PSN02

The PSN02, that came into the power on February 28, 2020, sets upgraded AML/CFT regulations, aimed to stop unlawful incomes led through DPT. Regulation provides KYC measures (including UBO), monitoring of accounts and suspicious transactions.

Main concepts

The PSA defines Digital Payment Tokens as follows:

“Any digital representation of value, which is a separate unit, not expressed in any currency and not tied to any currency, intended for use as a means of payment accepted by the public, which can be stored, transferred or sold electronically.”

DPT Service Providers are defined as companies providing DPT services, or exchange platforms, which are eligible to offer such assets for sale in Singapore.

DPT Services

DPT-services are defined, as follows:

  • Selling or purchasing of DPTs;
  • Establishing of a DPT exchange platforms; and
  • Participating and offering of financial services related to the offer and/or sale of a DPT by an issuer.
  • Transfer of DPTs from one DPT address to another
  • Inducing (or attempting to induce) any person to buy or sell DPTs (without the DPT service provider actually accessing any money or DPTs)

AML/CFT obligations of DPT-service providers

In order to obtain the MAS license, DPT-service providers and Singapore cryptocurrency exchanges must operate in accordance with the following AML/CFT requirements:

  • assess and mitigate the risks;
  • prescribe customer due diligence procedure (CDD);
  • control over electronic transactions;
  • records-keeping;
  • internal policies;
  • compliance officer;
  • suspicions operations reporting;
  • AML training of the company’s staff.

In March, MAS released a 73-page Notice PSN02, which clarified the AML / CFT obligations imposed on payments institutions.

Types of MAS DPT Service Licenses

The MAS established a common for all payment services providers licensing regime, which is based on a detailed classification of the different types of the activities, size of the companies and AML/FT risks. Therefore, the MAS has established three different licenses, which distinguish applicants based on their associated activity and risks involved:

  1. “Money-changer”:
    License for the companies providing only money-changing services.
  2. “Standard payment institution”:
    Applies to companies with average monthly transactions for any activity of under $3 million, and less than $5 million of e-money float per day.
  3. “Major payment institution”:
    This licensee must adhere to the strictest regulatory regime, applicable to big service providers, who average more than $3 million p.m. on payment transactions and over $5m on its average e-money float per day. In addition, it is mandatory to have capital thresholds ($250,000) and a $100k security deposit.

To sum up

Payment Services Act has provided Singapore with one of the most pragmatic and certain legal frameworks regulating crypto sphere in the world. With the Act, Singapore has positioned itself as an attractive destination for investors and service providers both interested in traditional and crypto payments services.

The specialists of our company will give competent advice on obtaining a DPT Service Provider license in Singapore, please, don’t hesitate to contact us.

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