If a digital token constitutes a product regulated under the securities laws administered by MAS, the offer or issue of digital tokens must comply with the applicable securities laws. The securities laws refer to the Securities and Futures Act (Cap. 289) (“SFA”) and the Financial Advisers Act (Cap. 110) (“FAA”).
Application of Securities Laws on offers or issues of digital tokens in Singapore
Offers or issues of digital tokens may be regulated by MAS if the digital tokens are capital markets products under the SFA. Capital markets products include any securities, futures contracts, contracts or arrangements for the purposes of leveraged foreign exchange trading.
Digital tokens which constitute capital markets products
- A collective investment scheme is an arrangement in respect of any property bearing all of the following characteristics:
- participants have no day-to-day control over management of the property;
- property is managed as a whole by or on behalf of a manager;
- participants’ contributions and profits or income of the arrangement from which payments are to be made to the participants are pooled; and
- purpose or effect (or purported purpose or effect) of the arrangement is to enable participants to participate in or receive profits, income or other payments or returns arising from acquisition, holding, management or disposal of, the exercise of, the redemption of, or the expiry of any right, interest, title or benefit in the property or any part of the property.
Offers of digital tokens which constitute securities or units in a CIS
Offers of digital tokens which constitute securities or units in a CIS are subject to the same regulatory regime under Part XIII of the SFA, as offers of securities or units in a CIS respectively made through traditional means. A person may only make an offer of digital tokens which constitute securities or units in a CIS (“Offer”), if the Offer complies with the requirements under Part XIII of the SFA. This includes the requirements that the Offer must be made in or accompanied by a prospectus that is prepared in accordance with the SFA and is registered with MAS (“Prospectus Requirements”).
An offer may nevertheless be exempt from the prospectus requirements where, amongst others
The offer is a small offer of securities of an entity, or units in a CIS, that does not exceed S$5 million (or its equivalent in a foreign currency) within any 12-month period, subject to certain conditions. A small offer must be a personal offer. A personal offer is one that is made to a pre-identified person, which includes offers made to persons who have previous professional or other connection with the offeror. As the word “personal” suggests, each personal offer must be made personally by the offeror, or by a person acting on its behalf, to the pre-identified person, and may only be accepted by the pre-identified person to whom the offer was made;
- the Offer is a private placement offer made to no more than 50 persons within any 12-month period, subject to certain conditions;
- the Offer is made to institutional investors only; or
- the Offer is made to accredited investors, subject to certain conditions.
- The exemptions for a small offer, a private placement offer and an offer made to accredited investors, are respectively subject to certain conditions which includes advertising restrictions.
- In addition, where an offer is made in relation to units in a CIS, the CIS is subject to authorisation or recognition requirements. An authorised CIS or a recognised CIS under the SFA must comply with investment restrictions and business conduct requirements.
Intermediaries who facilitate offers or issues of digital tokens
The following types of intermediaries typically facilitate offers or issues of digital tokens:
- a person who operates a platform on which one or more offerors of digital tokens may make primary offers or issues of digital tokens (“primary platform”);
- a person who provides financial advice in respect of any digital tokens;
- a person who operates a platform at which digital tokens are traded (“trading platform”).
A person who operates a primary platform in Singapore in relation to digital tokens which constitute any type of capital markets products, may be carrying on business in one or more regulated activities under the SFA. Where the person is carrying on business in any regulated activity, or holds himself out as carrying on such business, he must hold a capital markets services licence for that regulated activity under the SFA, unless otherwise exempted.
Extra-territoriality of the SFA and FAA
Where a person operates a primary platform, or trading platform, partly in or partly outside of Singapore, or outside of Singapore, the requirements of the SFA may nevertheless apply extra-territorially to the activities of that person under section 339 of the SFA.
Where a person who is based overseas, engages in any activity or conduct that is intended to or likely to induce the public, or a section of the public, in Singapore to use any financial advisory service provided by the person, the person is deemed to be acting as a financial adviser in Singapore.
Money laundering and financing of terrorism concerns
The relevant MAS Notices on Prevention of Money Laundering and Countering the Financing of Terrorism may apply (“AML/CFT Requirements”). Digital tokens that perform functions which may not be within MAS’ regulatory purview may nonetheless be subject to other legislation for combating money laundering and terrorism financing. MAS would like to highlight in particular the following:
- Obligations to report suspicious transactions with the Suspicious Transaction Reporting Office, Commercial Affairs Department of the Singapore Police Force pursuant to section 39 of the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (Cap. 65A);
- Prohibitions from dealing with or providing financial services to designated individuals and entities pursuant to the Terrorism (Suppression of Financing) Act (Cap. 325) and various regulations giving effect to United Nations Security Council Resolutions.
MAS also intends to establish a new payments services framework (“New Payments Framework”) that will include rules to address money laundering and terrorism financing risks relating to the dealing or exchange of virtual currencies for fiat or other virtual currencies. Such intermediaries will be required to put in place policies, procedures and controls to address such risks. These will include requirements to conduct customer due diligence, monitor transactions, perform screening, report suspicious transactions and keep adequate records.
Application of New Payments Framework to virtual currency exchange
While the activity of exchanging virtual currencies to fiat currencies is presently not regulated by MAS, MAS intends to regulate such activity under the New Payments Framework.