Significance: The Monetary Authority of Singapore (MAS) intends to pass a new omnibus statute to regulate all financial institutions (FIs), including (among others) virtual assets service providers (VASPs) or digital tokens (DT) service provider registered in Singapore but which perform services outside of Singapore.
Enhanced Financial Action Task Force (FATF) Standards (updated June 2019) recommend imposing Anti-Money Laundering / Counter-Financing of Terrorism (AML/CFT) requirements on VASPs when they carry out the following VA activities, which are assessed to pose significant ML/TF risks:
(a) exchange between VAs and fiat currencies;
(b) exchange between one or more forms of VAs;
(c) transfer of VAs;
(d) safekeeping and/or administration of VAs or instruments enabling control over VAs; and
(e) participation in and provision of financial services related to an issuer’s offer and/or sale of VAs.
FATF also recommends that VASPs must be licensed or registered in the jurisdiction(s) where they are created.
The current law in Singapore would already apply to an entity that carries on a business of conducting certain VA activities in Singapore (e.g. digital payment token (DPT) services under the Payment Services Act), regardless of whether the entity is created in Singapore.
However, MAS intends to regulate the carrying on of a business of providing VA activities outside of Singapore by DT service providers in line with the enhanced FATF standards.
FATF defines virtual assets as a “digital representation of value that can be digitally traded, or transferred, and can be used for payment or investment purposes”.
MAS intends to define a DT in the proposed new law as:
(a) a DPT as defined in the PS Act; or
(b) a digital representation of a capital markets product as defined in the Securities and Futures Act (SFA), which
(i) can be transferred, stored or traded electronically; and
(ii) satisfies such other characteristics as MAS may prescribe.
Specifically, each of the following is a DT service for the purposes of the new Act:
(a) Dealing in DTs, e.g. (a) buying or selling of DTs incidental to the provision of brokering services; (b) buying or selling of DTs incidental to the conduct of fund management activities, with DTs as underlying; and (c) buying or selling of DTs incidental to the conduct of underwriting services related to the offer or sale of DTs;
(b) Facilitating the exchange of DTs, including exchanges that facilitate the listing of the initial offer or sale of a DT.;
(c) Inducing or attempting to induce any person to enter into or to offer to enter into any agreement for or with a view to buying or selling any DTs in exchange for any money or any other DTs (whether of the same or a different type), e.g. brokering services in relation to the buying or selling of DTs;
(d) Accepting DTs for the purposes of transferring, or arranging for the transfer of, the DTs or arranging for the transmission of DTs (where the service provider does not come into possession of the DTs)–(a) accepting DTs from one DT address or account, whether in Singapore or outside Singapore, as principal or agent, for the purposes of transferring, or arranging for the transfer of, the DTs to another DT address or account, whether in Singapore or outside Singapore; or (b) arranging for the transmission of DTs from one DT address or account, whether in Singapore or outside Singapore, to another DT address or account, whether in Singapore or outside Singapore.;
(e) Safeguarding or administration of a DT or DT instrument, where the service provider has control over the DT or the DT associated with the DT instrument, e.g. DT custodian services;
(f) Advisory services relating to the offer or sale of DTs, excluding professional legal or accounting-related advisory services.
MAS intends to require that a DT service provider fulfil the following criteria at
the point of admission:
(a) The applicant must appoint at least one executive director who is resident in Singapore–an executive director is concurrently a person who (a) is in the direct employment of, or acting for or by arrangement with, the corporation; and (b) is concerned with or takes part in the management of the corporation on a day‑to‑day basis; responsible for discharging the duties or functions of his office, including ensuring the applicant’s compliance with its written policies and with all relevant laws, and the identification, addressing and monitoring of ML/TF and proliferation financing risks associated with the business, amongst others;
(b) The applicant must be incorporated as a company in Singapore;
(c) The applicant must have a permanent place of business in Singapore;
(d) The applicant must satisfy such financial requirements as may be
prescribed by MAS;
(e) Each of the directors and chief executive officer, or equivalent persons, of
the applicant is a fit and proper person.
MAS proposes to impose on licensed DT service providers the following ongoing requirements:
(a) The licensee must have a permanent place of business in Singapore;
(b) The licensee must appoint at least one person to be present, on such days and at such hours as MAS may specify by notice in writing, at the licensee’s permanent place of business to address any AML/CFT related queries or complaints from any DT user that uses any DT service provided by the licensee or is a customer of the licensee;
(c) The licensee must keep, or cause to be kept, at the licensee’s permanent place of business, books of all the licensee’s transactions in relation to any DT service provided by the licensee. Such books must be made available to authorities in a timely manner upon request;
(d) The licensee must satisfy such financial requirements as may be prescribed or specified by MAS by notice in writing;
(e) Each of the directors and chief executive officer, or equivalent persons, of the licensee is a fit and proper person.
The DT service provider must establish and staff an adequate AML/CFT compliance function in Singapore.
AML/CFT requirements for DT service providers would be aligned with the requirements imposed on DPT service providers in MAS Notice PS-N02 Prevention of Money Laundering and Countering the Financing of Terrorism –Holders of Payment Service Licence (Digital Payment Token Service).
Existing MAS-regulated FIs that are incorporated in Singapore, but carry on a business of providing DT service wholly outside of Singapore, will have to be licensed under the new Act, unless exclusions apply.
In addition, to ensure parity and consistency of AML/CFT requirements imposed on MAS-regulated FIs carrying on a business of DT services in Singapore, MAS intends to set out cross border value transfer requirements and occasional transactions requirements for DTs in all relevant AML/CFT Notices issued pursuant to the new Act. Such measures will apply if the MAS-regulated FI carries on a business of providing a DT service in Singapore.
This means that existing DT service providers which are incorporated or registered in Singapore, albeit performing services or activities overseas, must prepare to apply for the relevant licence and take steps to ensure compliance with the above propose regulations.