A Guide to Cryptocurrency Exchange Regulations in Singapore

Singapore is getting more and more friendly towards blockchain and distributed ledger technology. As a result, global cryptocurrency groups are expanding their presence in the country. Currently, there are over 300 companies have applied for crypto licenses so far, many of whom already operate in the city-state. 

Although the Singapore government has yet to issue licenses to cryptocurrency companies, it has granted exemptions to some of the industry’s biggest players. It is also is working towards providing general clarification of the rules so that the crypto ecosystem can thrive in Singapore.

Furthermore, while cryptocurrencies are not yet legal tender in Singapore, they are labeled as goods that can be used for exchange. In this article, we have provided an overview of how cryptocurrency exchanges are regulated in the country. 

Cryptocurrency exchange regulations in Singapore

Regulation of cryptocurrency and blockchain projects in Singapore is carried out by the Monetary Authority of Singapore (MAS). MAS believes in regulating the cryptocurrency ecosystem to monitor any risks associated with crypto activities, such as money laundering and terrorist financing while ensuring that it does not hinder innovation.  

Even though MAS makes most of the crypto regulations in Singapore, it has only provided guidelines to digital token offerings, which are not legally binding. A digital token refers to digital representation using cryptography in the form of a crypto asset token. 

Furthermore, MAS has clarified that if a digital token establishes a product regulated under securities laws managed by MAS, the offering or issuance of digital tokens must comply with applicable securities laws:

Payment Services Act

Payment Services Act (PSA) is a comprehensive regulatory framework for companies handling activities relating to digital assets, including payments and trading. It came into effect in 2020 to regulate traditional payments and exchanges as well as for cryptocurrencies. The objectives of introducing PSA were to streamline payment services under one law and calibrate regulations according to the risks posed by those activities by adopting a modular regulatory regime. 

PSA mainly provides a framework for obtaining a license to operate a cryptocurrency business in Singapore. In addition, it also outlines the money laundering compliance that cryptocurrency operators must meet.

Securities and Futures Act

The Securities and Futures Act (SFA) has also been made applicable to public offerings or issues of digital tokens. This act regulates a lot of projects, including Initial Coin Offerings (ICOs) and crypto exchanges. According to SFA, an exchange must be approved and pay an annual fee. In addition, an exchange has the following obligations:

• To notify the Authority of any changes to critical information related to its operations;
• To manage risk efficiently;
• To record transactions;
• To make reports to the Authority regularly;
• To assist the Authority when necessary; and
• To keep user and employee information confidential, unless the Authority or court orders state otherwise.

Proposed Omnibus Act

In July 2020, MAS proposed introducing the Omnibus Act, a new set of regulations to regulate the financial sector in Singapore. The proposal will have significant consequences for financial services firms operating in the country, including cryptocurrency businesses. 

The Omnibus Act was intended to harmonize and streamline MAS’ regulations and allow the Authority to issue prohibition orders (POs) to anyone after a ‘fit and proper’ test of the following elements:

• Honesty, integrity, and reputation;
• Competence and capability; and
• Financial health.

The Act will also expand the scope of POs to include prohibitions on other functions such as risk management, critical systems administration, fund handling, and cryptocurrency service administration.

Relevant licenses for Digital Payment Token (DPT) providers in Singapore

DPT service firms can choose between the following three licenses, depending on the scope and activities of their business:

Money-Changing License

Money-changing license holders are regulated under the Payment Services Act to only perform money exchange services, i.e., buying or selling foreign banknotes.

Overview

• Any individual applicant, partner, or director of the applying company must have at least one year of relevant work or business experience full-time.
• Money-changing license holders are required to pay an annual license fee of S$1,500.
• Local companies applying for this license must have more than 50% equity stake profitably and effectively controlled by Singaporean citizens.
• Foreign companies applying for this license must possess a good track record and reputation, rank among the top banks in the country (in the case of a foreign bank), and be adequately regulated and supervised by its home supervisory authority for AML/CFT.

Click here to apply. 

Standard Payment Institution (STI) License

The STI license allows its holders to provide any kind or number of payment services, including operations with cryptocurrency. However, there are certain limits:

• S$3 million monthly transactions for any payment service (other than e-money account issuance and money-changing services);
• S$6 million monthly transactions for two or more payment services (other than e-money account issuance and money-changing services); 
• S$5 million of daily outstanding e-money.

Key points:

• Applicants must be Singapore-incorporated companies or foreign corporations registered in Singapore.
• Applicants must have a minimum base capital of S$100,000.
• Standard payment institutions must pay an annual license fee; S$1,500 for money-changing services and  S$5,000 for other services.

For detailed information about the requirements for the license, click here.

Major Payment Institution (MPI) License

The MPI license offers the same opportunities for companies as the SPI license does but is meant for larger companies without being subject to the specified thresholds.

Overview:

• Applicants must have a minimum base capital of S$250,000.
• Applicable fees depend on the payment services that it is licensed to conduct; S$1,500 for money-changing services and  S$10,000 for other services.

For additional information about the eligibility criteria, refer to this page.

Taxation of cryptocurrency projects in Singapore

Currently, companies that choose to accept digital tokens such as Bitcoin for their remuneration or income are subject to standard income tax rules. Therefore, they are taxed on income earned from or received in Singapore.

Here are some key facts:

• Companies that buy and sell digital tokens daily are taxed on the profits earned from trading in digital tokens.
• Profits earned by businesses that mine and trade digital tokens in exchange for money are also taxed.
• Companies that purchase digital tokens for long-term investment purposes can enjoy capital gains from the release of digital tokens. However, since there is no capital gains tax in Singapore, these gains are not taxed.

For further information about the digital token tax treatment in Singapore, click here.

If you need further information regarding cryptocurrency exchanges in Singapore, you can contact us via email. We also offer consulting services related to regulatory compliance requirements, should you decide to register your company in the city-state and set up your cryptocurrency business there.

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