Offer of digital tokens in Singapore

The growing popularity of initial coin offerings has attracted the attention of the Monetary Authority of Singapore and the Commercial Affairs Department, who have since issued statements on this subject.

Initial coin (or token) offerings (ICOs), as an alternative means of raising-funds, is gaining greater popularity globally, including in Singapore. In addition, there has also been increasing interest in the launch of cryptocurrency funds by fund managers.

The Monetary Authority of Singapore (MAS) clarified on 01 August 2017 that the offer or issue of digital tokens in Singapore will be regulated by the MAS if the digital tokens constitute products regulated under the Securities and Futures Act (Cap. 289) of Singapore (SFA).

A digital token is a cryptographically-secured representation of a token-holder's rights to receive a benefit or to perform specified functions. 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.

According to the MAS, due to the anonymous nature of the transactions, and the ease with which large sums of monies may be raised in a short period of time, ICOs are vulnerable to money laundering and terrorist financing (ML/TF) risks. In its past media release of 13 March 2014, the MAS announced that it will regulate virtual currency intermediaries (which include operators of Bitcoin exchanges and Bitcoin vending machines) in Singapore for ML/TF risks - this is the case notwithstanding that virtual currencies, per se, may not be regulated. The MAS is currently assessing how to regulate ML/TF risks associated with activities involving digital tokens that do not function solely as virtual currencies.

The 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” (as defined in the SFA). Digital tokens may also represent a debt owed by an issuer and be considered a debenture under the SFA.

In addition, the MAS also clarified that where digital tokens fall within the definition of “securities” (as defined in the SFA), issuers of such tokens would be required to lodge and register a prospectus with the MAS prior to the offer of such tokens, unless exempted. Issuers or intermediaries of such tokens would also be subject to licensing requirements under the SFA and Financial Advisers Act (Cap. 110) of Singapore, unless exempted, and the applicable requirements on anti-money laundering and countering the financing of terrorism. And platforms facilitating secondary trading of such tokens would also have to be approved or recognised by the MAS as an approved exchange or recognised market operator respectively under the SFA.

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

Incidentally, shortly after the clarification by the MAS as mentioned above, the Commercial Affairs Department and the MAS on 10 August 2017 jointly issued a consumer advisory on investment schemes involving digital tokens (including virtual currencies) (Consumer Advisory). The Consumer Advisory highlighted various risks that are worth considering by consumers. They include risks relating to: (a) foreign and online operators, (b) sellers without a proven track record, (c) insufficient market liquidity, (d) high speculative instruments, (e) investments promising high returns, and (f) ML/TF.

Consumers are advised to check if the person or entity offering the investment scheme is regulated by the MAS. This may be done by checking the MAS’ Financial Institutions Directory on the MAS website. Consumers can also refer to the MAS’ Investor Alert List for a non-exhaustive list of entities that may have been wrongly perceived to be regulated by the MAS.

Lastly, consumers should make a report to the police if they suspect that an investment scheme involving digital tokens could be fraudulent.

The earlier clarification by the MAS and the Consumer Advisory are especially timely as the number of filed police reports over investment schemes involving digital tokens or currencies has been rising. They are important signals to consumers who may be contemplating investments in ICOs and/or investment schemes involving digital tokens, to exercise caution and exercise due diligence before they commit to any investment.

The legal and regulatory environment pertaining to the digital token and currency space is evolving rapidly and will need to be watched closely by stakeholders in the sector.

If you have any questions or would like to find out more, please contact us.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.