Is Singapore’s New Crypto Legislation a Double-Edged Sword?

Singapore just lately handed a regulation that may tighten guidelines for cryptocurrency service suppliers within the city-state.

The laws, the Financial Services and Markets Bill, requires digital asset suppliers created in Singapore however that conduct enterprise abroad to be licensed and topic to native Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) necessities.

“The new regulation plugs a hole the place no single jurisdiction has ample regulatory maintain over a particular crypto service supplier because of the web and digital nature of its enterprise,” stated Adrian Ang, co-head of Allen & Gledhill’s fintech observe and its environmental, social and governance and public coverage observe. “The impact of the brand new invoice is that crypto service suppliers will should be at the very least licensed or registered within the jurisdictions the place they’re created,” he added.

Cryptocurrency gamers working in Singapore are already regulated by the Monetary Authority of Singapore (MAS), however the brand new regulation additionally offers the monetary watchdog the facility to conduct inspections of digital token service suppliers doing enterprise abroad, and likewise to help overseas regulatory our bodies and businesses on investigations.

New authorized and regulatory frameworks point out a proactive willingness on Singapore’s half to acclimate to the cryptocurrency ecosystem, not like its neighboring nations, which have imposed outright bans on the digital funds sector. China has opted for full prohibitions on cryptocurrency buying and selling; so has Indonesia and, most just lately, Thailand.

Singapore has been cautious with its strategy, although. In January, the MAS issued tips that cryptocurrency service suppliers mustn’t promote their providers to most people within the city-state. In exercising its warning, the MAS has additionally denied purposes to greater than 100 cryptocurrency companies searching for to launch operations on its soil.

Last yr, MAS ordered Binance, one of many world’s largest cryptocurrency exchanges, to cease offering fee providers in Singapore and to stop soliciting enterprise from its residents. MAS additionally positioned Binance.com on its Investor Alert List in September to warn shoppers in Singapore that the platform shouldn’t be regulated or licensed within the city-state to offer fee providers.

The Singapore affiliate of Binance has since introduced that it has withdrawn its native license utility and wound down its digital fee token enterprise in Singapore.

“The new regulation will have an effect on the attractiveness of Singapore as a crypto hub,” stated Chia Ling Koh, director at Osborne Clarke’s Singapore workplace—identified there as OC Queen Street. “Crypto gamers in Singapore should revisit their enterprise fashions and assess the necessity for licenses.

“Still, Singapore’s new regulation might enhance the credibility of crypto gamers who stay in Singapore, given the stricter regulatory necessities and MAS oversight. Greater credibility is actually a boon for crypto gamers, particularly given crypto’s poor reputation as a lemons market,” stated Koh.

Indeed, historical past has thus far proven Koh to be proper. In spite of stricter rules, funding within the cryptocurrency and blockchain sector in Singapore grew tenfold final yr. According to a KPMG fintech report, Singapore noticed 82 offers value a mixed $1.48 billion in 2021.

Some current high-profile cryptocurrency offers embody a $150 million partnership between Bybit, a Singapore-based cryptocurrency alternate established in 2018,  and Red Bull Racing. The deal signifies that Bybit, which has over 6 million registered customers globally, will develop into Red Bull Racing’s unique cryptocurrency alternate accomplice. The partnership additionally signifies that Red Bull will be capable of enhance fan engagement by issuing “fan tokens” and by distributing its digital property.

As the cryptocurrency market continues to develop, legal professionals say it’s necessary for the frameworks governing cryptocurrency to be much more strong.

“There must be regulation across the crypto exchanges in the identical means that the inventory exchanges or the stockbrokers are regulated,” stated Danny Ong, a Rajah & Tann accomplice who just lately acted on a landmark fraud case that succeeded in recovering about $7 million in cryptocurrencies that had been stolen from an American entrepreneur final yr.

“There needs to be regulation round capital upkeep, and compliance and threat frameworks should be employed,” stated Ong. “Compliance when it comes to the depth of AML that’s executed in relation to account holders. I don’t see why they need to be handled any otherwise. And given the nameless nature of the crypto transactions, in reality, one might say that they need to be handled extra stringently.”

Allen & Gledhill’s Ang highlights different gaps within the governance of cryptocurrency service suppliers and transactions. An trade customary for working methods that may handle AML and CFT dangers must be developed and be implementable from a sensible perspective, he says.

All three legal professionals agree that extra rules are possible. In January, Singapore handed the Payment Services (Amendment) Act 2021. It has but to take impact however when it does, sure actions referring to cryptocurrencies, together with the transmission of cryptocurrencies, brokerage providers for cryptocurrencies and custodial providers for cryptocurrencies, might be regulated.

“I anticipate that there might be an growing give attention to the incidental and secondary elements of the proposed enterprise actions of crypto service suppliers, as extra facets of crypto actions develop into regulated,” stated Ang. “Lawyers might want to make sure that seemingly minor or incidental elements of a crypto enterprise exercise don’t invariably set off any extra regulated actions.”

Stricter rules will show a boon, as properly, for fintech legal professionals in Singapore.

“In the close to time period, there would possible be an elevated quantity of authorized work for legal professionals offering crypto recommendation,” stated Koh. “Legal help would definitely be required for crypto gamers to carry out a cost-benefit evaluation of remaining in Singapore in gentle of encroaching rules.”

It’s a troublesome steadiness to strike. Singapore has nice ambitions to develop into a international cryptocurrency hub, however to comprehend that objective, it must first grapple with and handle the multitude of dangers the fast-growing sector presents.

“I believe Singapore desires innovation to take off—not the crypto market per se,” stated Koh. “With heavy regulation, innovation will naturally take a beating. It’s arduous to steadiness innovation and Singapore’s popularity as a international monetary hub. In the top, one thing has to provide means.”