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Singapore clarifies stance on digital tokens

Changes in the way digital tokens are being used has prompted Singapore's central bank to tighten regulations around the way they are offered or issued.02 Aug 2017

The Monetary Authority of Singapore (MAS) said the changes have been prompted because digital tokens are no longer being used merely as virtual currency. It has acted after it identified a recent rise in the number of initial coin, or token, offerings (ICOs) in Singapore as a means of raising funds.

MAS has now clarified that offering digital tokens as security during a trade in assets, or issuing them as shares, will be a regulated activity in Singapore, subject to some exemptions applying.

MAS said that will be the case where the offer or issue of digital tokens constitute products regulated under the Securities and Futures Act (SFA).

MAS has also said that platforms that enable secondary trading of digital tokens would have to be approved or recognised by it, and further confirmed that it could tighten existing anti-money laundering and terrorist financing rules applicable to digital tokens. According to MAS, digital tokens are vulnerable to money laundering and terrorist financing (ML / TF) risks because transactions are anonymous, and because large sums of monies can easily be raised in a short period of time.

MAS defined a digital token as "a cryptographically-secured representation of a token-holder's rights to receive a benefit or to perform specified functions", while it said a virtual currency is one particular type of digital token, which typically functions as a medium of exchange, a unit of account or a store of value.

MAS said in 2014 that while virtual currencies per se were not regulated, intermediaries in virtual currencies would be subject to rules designed to combat ML / TF risks. In its new statement it said it is currently looking into how to regulate the risks associated with activities involving digital tokens that do not function solely as virtual currencies.

"MAS’ position of not regulating virtual currencies is similar to that of most jurisdictions," MAS said. "However, MAS has observed that the function of digital tokens has evolved beyond just being a virtual currency. For example, digital tokens may represent ownership or a security interest over an issuer’s assets or property. Such tokens may therefore be considered an offer of shares or units in a collective investment scheme under the SFA. Digital tokens may also represent a debt owed by an issuer and be considered a debenture under the SFA."

The issuers of digital tokens that fall within the definition of securities in the SFA will be required to lodge and register a prospectus with MAS prior to offering them, unless they are exempt. Issuers or intermediaries would also be subject to licensing requirements under the SFA and Financial Advisers Act unless exempt. They will also be subject to the applicable ML / TF regulations, MAS said.

"The types of digital tokens offered in Singapore and elsewhere vary widely," MAS said. "Some offers may be subject to the SFA while others may not be. All issuers of digital tokens, intermediaries facilitating or advising on an offer of digital tokens, and platforms facilitating trading in digital tokens should therefore seek independent legal advice to ensure they comply with all applicable laws, and consult MAS where appropriate."

Technology law expert Bryan Tan of Pinsent Masons MPillay, the Singapore joint venture partner of Pinsent Masons, the law firm behind Out-Law.com, said: "The regulators have acted very quickly with this clarification, over an area that is fast developing and attracting recent headlines."

The US Securities & Exchange Commission said last week that it will consider ICOs to be sales of securities from now on.

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