Jan 23 2019 | by OrionW
The Monetary Authority of Singapore (MAS) published an updated version of A Guide to Digital Token Offerings (the Guide) on 30 November 2018. The Guide provides general guidance on the application of the securities laws to offers or issues of digital tokens in Singapore. The Guide now also includes information concerning the potential application of the new Payment Services Act (PSA) to certain digital tokens and activities related to those tokens and a significantly expanded discussion of MAS’s anti-money laundering / countering the financing of terrorism (AML/CFT) requirements as they apply to digital token offerings. Although the Guide is expressly non-binding and non-exhaustive, it provides welcome reassurance and clarity for existing and potential issuers of digital tokens in Singapore. This article updates our November 2017 article on the previous version of the Guide.
The Guide’s central message is that offers or issues of digital tokens may be regulated by MAS if they constitute ‘capital markets products’ under the Securities and Futures Act (SFA). Such products include securities, units in a collective investment scheme (CIS), derivatives contracts and spot foreign exchange contracts for purposes of leveraged foreign exchange trading. MAS noted that it will look to the structure and characteristics of, including the rights attached to, a digital token when considering if it is a capital markets product under the SFA.
MAS has stated that offers of digital tokens that amount to offers of capital markets products are subject to the usual offering requirements as set out in Part XIII of the SFA, unless exempted. Exemptions are available for small (personal) offers (broadly, raising no more than S$5 million within any 12-month period), private placements (offers to no more than 50 persons within any 12-month period) and offers to institutional or accredited/high net worth investors.
The Guide also highlights that intermediaries who facilitate offers or issues of digital tokens that are capital markets products will require capital markets services licences or other approvals to operate. Examples include: an intermediary operating a primary platform for offering or issuing digital tokens in Singapore that constitute capital markets products; an intermediary providing financial advice in Singapore in respect of digital tokens that are considered investment products; and an intermediary establishing or operating a trading platform in Singapore for digital tokens that are securities or futures contracts.
Such licensing or other approval requirements under the SFA may apply equally to intermediaries based partly or wholly outside of Singapore. Similarly, a person based overseas who provides financial advisory services in Singapore could be deemed to be acting as a financial adviser in Singapore and may require a licence under the Financial Advisers Act (FAA).
The Guide reviews the AML/CFT requirements for intermediaries conducting regulated activities. For example, those intermediaries must take appropriate steps to identify, assess and understand their money laundering and terrorism financing (ML/TF) risks; develop and implement policies, procedures and controls to enable them to manage and mitigate the risks they have identified; perform enhanced measures where higher ML/TF risks are identified; and monitor the implementation of those policies, procedures and controls, and enhance them if necessary.
MAS also notes that a person dealing in digital payment tokens (tokens that are not capital markets products, are not denominated in or pegged to a fiat currency and are accepted by the public for goods and services or to discharge a debt) or facilitating the exchange of digital payment tokens will require a licence under the PSA and will be subject to AML/CFT requirements. However, even if a token is not a capital markets product and the person transacting in the token is not required to be licensed under the PSA, MAS has emphasised that the ML/TF laws continue to apply.
The Guide now includes 11 case studies that help explain the approach MAS will take when assessing digital tokens. The key points from these case studies are summarised below.
MAS has reaffirmed that businesses seeking to apply technology in innovative ways to provide financial services that are or are likely to be regulated by MAS are eligible to apply to enter the MAS regulatory sandbox and face relaxed specific legal and regulatory requirements.
Finally, MAS notes that it only wishes to receive inquiries regarding the application of the securities laws to digital tokens after a person has reviewed the case studies and answered certain critical questions set out in the Guide. If an inquiry is warranted, MAS provides a helpful checklist of items to consider submitting in support of the inquiry. MAS stresses that any reply to an inquiry would not be an endorsement of the inquirer’s digital token, offering or business model and would not preclude MAS from taking enforcement action based on the characteristics of the token as issued and/or the actions of the inquirer related to the issuance of the token.
 The Guide analysed the proposed version of the PSA, the Payment Services Bill, but there are no material differences between the PSA and the Bill with respect to the matters discussed in the Guide. Please see our article providing an overview of the PSA [link].