In Singapore’s journey to becoming a Smart Nation, the financial sector is an integral component to achieve this mission.
But for Singapore to maintain its competitive edge as a global financial hub, both technology and innovation play important roles. Hence, Singapore, understanding this, has created a Smart Financial Centre through the Monetary Authority of Singapore (MAS).
Recently, Singapore added a feather in its cap when the Singapore-based bank, DBS, launched the DBS digital exchange in December 2020, making it one of the pioneers among traditional financial institutions to take such a leap.
But, with the growth in the digital exchanges space, how is Singapore regulating cryptocurency exchanges?
The Role of the Monetary Authority of Singapore
Digital exchanges in Singapore are regulated by MAS. In 2018, Tharman Shanmugaratnam, the Chairman of MAS, announced that cryptocurrencies would be subjected to similar anti-money laundering (AML) and combating the financing of terrorism (CFT) measures as traditional currencies.
He had before stated that although MAS does not regulate virtual currencies, new regulations for payment services were in the works to tackle AML and CFT issues surrounding cryptocurrencies, which are not legal tenders in Singapore.
In 2019, a MAS press release warned about the risks associated with cryptocurrency speculation and in another statement in 2021, MAS deemed cryptocurrencies unsuitable for retail investors.
Since 1992, Singapore has been a member of the Financial Action Task Force (FATF), which is an intergovernmental policymaking body to address AML and CFT matters. When it comes to virtual assets, the FATF believes that they can be used in criminal and terrorist activities given the anonymity and cross border nature of their activities.
In July 2020, MAS released the Consultation Paper on a New Omnibus Act for the Financial Sector to ensure they are aligned with the revised FATF standards on digital exchanges. This included a recommendation that digital exchanges with a ‘meaningful presence’ such as offices and directors in Singapore are to conduct their operations abroad following the same regulations as they would in Singapore.
Payment Services Act 2019
The Payment Services Act (PSA) was passed in 2019 to mitigate risk and build confidence in the payment landscape while also promoting growth and confidence. It took into consideration feedback from the industry through dialogues and public consultations. The PSA came into effect in January 2020 and brought exchanges and cryptocurrencies businesses under the regulation of MAS.
Digital exchanges providing cryptocurrency-related services would need to obtain a license from MAS and they are also required to take measures such as performing customer due diligence and monitor the transactions. In the event a red flag is raised about a suspicious transaction, the business is required to file a report with the Commercial Affairs Department (CAD).
Apart from the above, the complete list of AML/CFT requirements that is stipulated in the PSN02 notice by MAS in December 2019 also included these areas: risk assessment and risk mitigation, correspondent accounts and wire transfers, internal policies, compliance, audit, training, reliance on third parties and record keeping.
In January 2021, a Bill was passed to enhance the PSA and expand MAS’ authority to impose user protection measures when deemed necessary, such as requiring a digital exchange to segregate customer assets from its own assets. While the PSA governs digital exchanges with cryptocurrency-related services, other exchanges that enable the trading in securities tokens are regulated under the Securities and Futures Acts.
A woman became the first person to be charged in June 2020 for violating the PSA when she facilitated the purchase of Bitcoin for an unknown person in return for a commission. However, she did not have a license and it was later discovered that the funds were proceeds from online scams.
Robust Surveillance and Public Awareness
MAS is also committed to increased scrutiny and surveillance on the cryptocurrency industry to ensure that higher-risk activities and suspicious networks are detected and scrutinized. Apart from this, MAS closely tracks developments within the crypto assets space and regulations in other jurisdictions to ensure that their regulations are robust enough.
For 2020, Statista reported that the cumulative market capitalization of cryptocurrencies grew approximately 300%, with Bitcoin holding the majority of it.
With such tremendous growth, MAS is increasing awareness among the public through its consumer advisories, especially on the risks of purchasing digital payment tokens. Besides this, MAS has also cautioned the public to report to the police if they suspect that an investment is being misused for unlawful activities.
Balancing Regulation and Support for Digital Exchanges
Yet, regulation must be balanced with support towards players in the industry to promote growth. An example of MAS’ understanding of this can be seen in its work with The Association of Cryptocurrency Enterprises and Start-ups in its Code of Practice, in partnership with the Association of Banks in Singapore.
The purpose of the code, which was released in August 2020, is to assist cryptocurrency businesses to apply for the required license. This reflects MAS’ commitment to establishing Singapore as a leader in fintech and blockchain, both through regulation and support to spur innovation and growth.