Navigating Singapore’s fintech and crypto regulations

With Singapore’s status as a fintech and digital assets hub, many companies wish to set up business in Singapore. Despite Singapore’s reputation for ease of doing business, companies are frequently surprised to discover the regulatory landscape is a complex one which requires considerable knowledge to navigate. Below,, we present five pitfalls a new fintech or crypto company needs to keep in mind.

Legislation

Singapore’s fintech and crypto laws are extremely broad, which means various services are captured by the plain meaning of the legislative text. Additional analysis needs to be given to determine whether the intended offering falls under an exclusion and whether the activity intends to be regulated or will merely be the unfortunate victim of expansive drafting. It is difficult to distill a single formula to determine whether a service is regulated.

The legislation is capable of regulating entities overseas (e.g. an overseas operator offering payment services in Singapore may be regulated) and regulating activities overseas (e.g. a Singapore entity that offers services internationally).

Incidental services

Compounding the broad scope of legislation is that there is no carve-out for incidental services. Hence, a tech-enabled business which offers an incidental payment service will still need to comply with regulations. For instance, if a bricks-and-mortar store sets up an online store and provides a wallet balance with e-money, e-money regulations would apply. The store will then need to figure out whether it can fall under exclusions such as the limited purpose e-money exclusion.

Regulating crypto

There is no single piece of legislation by which cryptocurrencies and digital assets are regulated. Instead, a cryptocurrency and digital assets provider may potentially be regulated as: (i) a digital payment token service provider under the Payment Services Act; (ii) a digital token provider under the Financial Services and Markets Act; (iii) an offeror of securities or capital market services provider under the Securities and Futures Act, or (iv) a commodity broker under the Commodity Trading Act.

The above reflects an evolutionary and incremental approach by the Monetary Authority of Singapore (MAS) in both the introduction of new laws to comply with Singapore’s international obligations (such as FATF) and the adaption of existing laws to apply to cryptocurrencies and digital assets that have the same nature as existing asset classes.

Evolving attitudes

MAS is constantly calibrating their regulatory response, so players can be caught off guard by sudden reactions due to market developments. Although MAS historically confined itself to discouraging retail speculation in cryptocurrencies, it has now taken a proactive approach. Following retail investors losing money in recent market crashes, MAS is now considering measures for cryptocurrency exchanges such as the implementation of customer access controls such as knowledge tests and prohibiting leverage.