Case Update: B2C2 Ltd v Quoine Pte Ltd [2019] SGHC(I) 3 – SICC decides on cryptocurrency trade dispute

SICC decision in B2C2 v Quoine is groundbreaking. A few comments:

1. Cryptocurrency is deemed akin to property which can be held on trust. Significance: crypto assets will be ringfenced if trustee becomes insolvent.

2. Cryptocurrency exchange platform (or any other type of digital exchange) must expressly contract for the right to reverse trades in certain scenarios.

3. In determining the application of the legal doctrine of unilateral and common mistake, the court considered the knowledge and intent of the programmer of the trading algorithm—whether the algo was intended to be opportunistic of mistakes. Strangely, it’s possible that if a human was the one who executed the same trades, the doctrine may apply to deny the plaintiff’s claim.

4. Significance: legal doctrine is being bent by algorithm and technology. This decision may pave the approach for application of doctrine to scenarios of automated technology replacing human actors.

5. Remedy in this case was not return of the cryptocurrency because of the substantial value increase since the events. Instead damages were to be assessed. This may matter if the defendant is cash light.

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Legislative Update: MAS Payment Services Act and fintech

Significance: new Payment Services Act (“PSA“) by the Monetary Authority of Singapore (“MAS”) was passed by Parliament on 14 January 2019. This new law will replace the Payment Systems (Oversight) Act (Cap. 222A) (“PSOA”) and the Money-Changing and Remittance Businesses Act (Cap. 187) (“MCRBA”).

The proposed new law will apply to:-

a) account issuance service;
b) domestic money transfer service;
c) cross-border money transfer service;
d) merchant acquisition services;
e) e-money issuance service;
f) digital payment token service (cryptocurrencies or virtual currencies);
g) money-changing service.

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Legislative Update: Market Operators in Singapore – Cryptocurrency and Digital Token Exchanges

Updated: Cryptocurrency and digital token exchanges may be market operators or digital payment token exchange

Cryptocurrency and digital token exchanges (“Token Exchanges”) which allow the trading and exchange of any token which are “capital markets products”, that is securities, shares, bonds, debentures, units in collective investment schemes, regulated under the SFA would likely be deemed to be market operators: see Case Study 6 of the Guide to Digital Token Offerings issued on 14 November 2017, revised on 30 November 2018 (the “DTO Guide”).

Token Exchanges which do not allow trading of any capital markets products regulated under the SFA would not be deemed market operators. However, the Monetary Authority of Singapore (“MAS”) will regulate such exchanges which allow trading of cryptocurrency and digital payment tokens (or virtual currencies) that are not security tokens under a proposed new Payments Services Act (“PSA“): see analysis of the Payment Services Bill here.

Operators of Token Exchanges that allow trading of “capital markets products” will need to obtain MAS’s approval, recognition or exemption under the SFA.

Operators of Token Exchanges that allow trading of digital payment tokens that are not security tokens or “capital markets products” will need to apply for a licence from MAS under the PSA. Exchanges licensed under the PSA to perform such activities will be required to comply with AML/CFT requirements, including those relating to identification and verification of customer, ongoing monitoring, screening for ML/TF concerns, suspicious transaction reporting and record keeping. More information on this will emerge subsequently.

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Article: So you want to conduct an initial coin offering (ICO) or digital token sale?

Introduction

So you are a tech startup who want to raise funds. You figure that instead of incurring debt, issuing equity, entering into convertible loan agreements (CLA), you will conduct an initial coin offering (ICO) or digital token sale. Not least because the amounts of money which have been raised by recent ICOs are huge. (I am using ICO because it is a shorter well-recognised abbreviation than “digital token sale”, even though the term ICO may be a bit of a misnomer.)

For every ICO that makes headlines, there are probably many ICOs which fall far below the issuers’ expectations. A lot of this of course is based on investors/purchasers’ sentiment and speculation. But some of that is also dependent on a few things like good marketing, viable underlying business model or technology, a credible team, and fair and reasonable terms of sale. If you do wish to build credibility for your ICO, there are some things which you would want to consider from a legal, regulatory perspective.

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Regulatory Update: MAS Guide to Digital Token Offerings

JUST IN. MAS Guide to Digital Token Offerings.

The case studies are very helpful in illustrating MAS’ position on whether certain scenarios fall within regulated activities under the Securities and Futures Act (SFA) or Financial Advisers Act (FAA).

Case study 1: tokens only give access rights to token issuer’s platform and pay for services on the same–not subject to SFA or FAA.

Case study 2: tokens to represent share in company which plans to develop property. Will constitute securities under SFA. Company may need to apply to be licensed financial adviser. Company will need to comply with prospectus requirements.

Case study 3: tokens enable holders to receive profits from company’s investments in a portfolio of shares in companies. Token holders have no powers relating to operations or management. Will constitute collective investment scheme (CIS). Company will need to comply with prospectus requirements, and likely will need to apply for capital markets services (CMS) licence.

Case study 4: token holders receive profits from investment in shares of portfolio of companies. Token issue not available to persons in Singapore. Part XIII of SFA will not apply. But company may be carrying on business of fund management in Singapore and may thus need to apply for CMS licence.

Case study 5: tokens represent loan by investor to startup. Token will be deemed a debenture and thus securities under the SFA. Company facilitating purchase or sale of token may require CMS licence.

Case study 6: company plans to set up virtual currency exchange platform. On the premise that no products regulated under SFA will be traded, SFA will not apply. If any token constitutes securities under SFA, then company may be operating a securities market and thus need to be approved as an exchange by MAS.

http://www.mas.gov.sg/Regulations-and-Financial-Stability/Regulations-Guidance-and-Licensing/Securities-Futures-and-Funds-Management/Guidelines/2017/A-Guide-to-Digital-Token-Offerings.aspx

MAS clarifies approach to ICO or token sales

On 1 August 2017, MAS issued a press release clarifying its approach to initial coin or token offerings (ICO) or token issuance or sales. This note provides some comments on MAS’ clarification. It is of significant interest because there have been several ICOs conducted in Singapore recently, and has thus attracted interest in prospective issuers looking to raise funds by way of ICO. This comes shortly after the US Securities and Exchange Commission (SEC) announced that certain ICOs would amount to “securities”.

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