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Monetary Authority of Singapore to regulate issue of digital tokens which function as securities

The Monetary Authority of Singapore (MAS) clarified today that the offer or issue of digital tokens in Singapore will be regulated by MAS if the digital tokens constitute products regulated under the Securities and Futures Act (Cap. 289) (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, such as Bitcoin.

In March 2014, MAS had communicated that while virtual currencies per se were not regulated, like in most jurisdictions at the moment, intermediaries in virtual currencies would be regulated for ML/TF (money laundering/ terrorism financing) risks.

But recently there has been an upsurge in initial coin (or token) offerings in Singapore as a means of raising funds, with companies raising millions of dollars. A project or venture can raise funding by creating and selling its own cryptocoins or tokens in exchange for cryptocurrencies of immediate, liquid value such as Bitcoin or Ethereum. Startups use this to avoid the rigorous and regulated pathways of going via banks or venture capital firms or doing a regular IPO (Initial Public Offering or the initial offer of shares of previously private company to the public).

ICOs are vulnerable to ML/TF risks 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.

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 (like in the ICOs, where cryptocurrency replaces regular currency and newly minted cyptocoins or tokens act as shares.) or units in a collective investment scheme under the Securities and Futures Act (SFA). Digital tokens may also represent a debt owed by an issuer and be considered a debenture under the SFA.

MAS is currently assessing how to regulate ML/TF risks associated with activities involving digital tokens that do not function solely as virtual currencies.

Where digital tokens fall within the definition of securities in the SFA, issuers of such tokens would be required to lodge and register a prospectus with 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, unless exempted, and the applicable requirements on anti-money laundering and countering the financing of terrorism.

In addition, platforms facilitating secondary trading of such tokens would also have to be approved or recognised by MAS as an approved exchange or recognised market operator respectively under the SFA.

In view of the wide variety of digital tokens offered in Singapore and elsewhere, the press release states that some offers may be subject to the SFA while others may not be. It advises  all issuers of digital tokens, intermediaries facilitating or advising on an offer of digital tokens, and platforms facilitating trading in digital tokens to seek independent legal advice to ensure they comply with all applicable laws, and consult MAS where appropriate.

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