On 1 August 2017, the Monetary Authority of Singapore (MAS) issued a guide to digital token offerings that clarified its treatment of digital tokens. MAS will examine the structure and characteristics of, including the rights attached to the digital token in determining if the digital token is a type of capital market product under the SFA.
Where digital token constitutes a product regulated under the securities laws, the guide stresses that the offer must comply with the requirements of the Securities and Futures Act (Cap. 289) (“SFA”) and the Financial Advisers Act (Cap. 110) (“FAA”). These requirements include (1) publication and registration of prospectus; (2) licensing requirements (3) AML/CFT regime.
Prospectus and Business Conduct Requirement
Where it is established the digital token has the characteristics akin to a share, debenture or a unit in a collective investment scheme (“CIS”) it will be subject to the regulatory regimes under Part XIII of the SFA. The regime’s requirement includes a mandatory accompaniment of the token on offer with a prospectus prepared in accordance with the SFA and registered with MAS.
Where it is established the digital token offer is made in relations to units in a CIS, it will be required to comply with SFA ((Offers of Investments)(Collective Investment Schemes) Regulations 2005(“SF(OI)(CIS)R”), the Code on Collective Investment Schemes (“Code on CIS”) and the Practitioner’s Guide to the CIS Regime) investment restrictions and business conduct requirements.
Exemption to Prospectus Requirement
This requirement under the prospectus requirement will, however, be exemptible where the offer is a small offer (not exceeding $5million with a 12-month period); it is private placement offer (made to no more than 50 persons within a 12-month period); it is made to institutional investors or accredited investors.
Licensing Requirement for Intermediaries
The guide provides that any person who operates a primary platform in Singapore in relation to digital token which constitutes any type of capital market products may be carrying on business in one or more regulated activities under the SFA hence will be required to hold a capital market services licence for that regulated services unless exempted; or where one is providing advice in respect of a regulated security, must get a financial adviser’s licence under FAA unless exempted; where one operates a trading platform in Singapore in relations to securities or future contracts, is required to get approval from MAS as an approved exchange. This may apply even where the exchange is partly outside or wholly outside Singapore (Section 339 (Extra-Territoriality) of the SFA (Guidelines N. SFA15-G01).
Money Laundering and Financing of Terrorism and Payment Framework
MAS emphasizes that relevant notices on AML/CFT may apply even where such offers fall outside of the MAS regulatory perimeter. Apart from the existing regulations in AML/CFT space, MAS revealed its intention to establish a new payment service 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.
The guide also mentions the provision of regulatory sandbox for those who wish to apply for it. Approved applicants will enjoy support from MAS that includes relaxation of specific regulatory and legal requirements.
NB: The guide contains several case studies that are instructive on how MAS will be examining digital token offering to establish their regulatory treatment.