New legislation introduced in Singapore’s Parliament would now regulate virtual asset service providers (VASPs) that are based in Singapore but only provide services outside Singapore. If enacted, the Financial Services and Markets Bill 2022 (FSM Bill), given its first reading on 14 February 2022, would require companies formed in Singapore and individuals and partnerships based in Singapore but that only provide digital token services outside Singapore to be licensed and regulated by the Monetary Authority of Singapore (MAS).
The FSM Bill would also grant MAS broad regulatory authority across the financial sector, harmonise and expand MAS’s power to issue prohibition orders, consolidate MAS’s authority to impose technology risk management requirements and provide statutory protection for certain persons involved in approved dispute resolution schemes.
The VASP provisions of the FSM Bill implement the Financial Action Task Force’s enhanced standards to regulate VASPs for money laundering and terrorist financing risks. To reduce regulatory arbitrage — i.e., VASPs structuring their operations to avoid regulation in any jurisdiction — the FATF seeks to require all VASPs to be subject to regulation in at least the jurisdiction where they are created.
VASPs providing services in Singapore are regulated under the Payment Services Act (PS Act) or the Securities and Futures Act if they deal in digital payment tokens or tokens that are capital markets products, respectively. The FSM Bill would complement those laws by regulating VASPs that only provide offshore digital token services. A digital token is a digital payment token or a digital representation of a capital markets product that can be transferred, stored or traded electronically.
The regulatory scheme of the FSM Bill for VASPs would be broadly aligned with that of the PS Act for digital payment token service providers. Like the PS Act, the FSM Bill would require licensed digital token service providers to have a meaningful presence in Singapore, submit information and periodic reports to MAS and refrain from granting credit.
The scope of activities regulated under the FSM would also mirror the PS Act (after the Payment Services (Amendment) Act becomes effective): both would apply to dealing in, facilitating the exchange of, accepting or arranging for transfer of, safeguarding and providing other services related to digital tokens (under the FSM Bill) or digital payment tokens (under the PS Act).
MAS consulted on the FSM Bill in 2020. The second reading of the bill is currently scheduled for the first available sitting of Parliament in April 2022.
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Disclaimer: This article is for general information only and does not constitute legal advice.