How to Legally Offer Crypto Services in Singapore
Digital Payment Tokens (DPTs), or more popularly known as cryptocurrencies, present potential for a truly decentralised and digital form of currency in the global financial market. Indeed, some businesses have even begun to offer DPTs as a payment option alongside conventional options such as credit card and cash payment.
Nevertheless, DPTs as a means of payment have not become mainstream yet and regulations over the practice vary across the world. If you are a business owner seeking to offer DPT services to the public in Singapore, it is important to note the guidelines governing their use in Singapore. This article will provide an overview of how you can legally provide DPT services. It will cover:
- What DPT service providers take note of when providing DPT services in Singapore, according to the Guidelines on Provision of Digital Payment Token Services to the Public
- Whether DPT service providers are required to comply with the Guidelines
- The potential consequences of not complying with the Guidelines
What Should DPT Service Providers Take Note of When Providing DPT Services in Singapore?
Following the growing popularity of DPTs, and concerns over their novelty and complexity, the Monetary Authority of Singapore (MAS) has issued Guidelines on Provision of Digital Payment Token Services to the Public (the Guidelines) for DPT service providers. The Guidelines seek to address the potential risks associated with the use of DPTs amongst inexperienced members of the general public.
Besides the inherent risk of DPTs due to the highly speculative nature of their value, other risks include the fact that many DPT operators run their investment schemes online or overseas. This makes it harder to verify their credibility and could potentially leave investors with limited recourse in the event that the scheme fails. Moreover, the pseudo-anonymous nature of DPT transactions can potentially implicate investors in illegal activities such as money laundering or terrorist financing.
If you are an entity providing any type of payment services in Singapore, including services involving DPTs, then your entity is regulated by the Payment Services Act (PSA). Services involving DPTs include the:
- Transfer of DPTs
- Provision of custodian wallet services for DPTs
- Facilitating the exchange of DPTs without possession of monies or DPTs by the DPT service provider.
The PSA in turn requires such entities to obtain a licence to provide the relevant DPT services if they haven’t already done so.
Your business should not promote any DPT services you provide to the general public. This means that advertisements in public areas in Singapore, or media directed at the general public in Singapore, are not allowed.
Likewise, DPT service providers should not engage third-parties, such as social media influencers, to solicit new customers. However, DPT service providers may promote their service on their own corporate websites, mobile applications or official social media accounts.
This is provided that the promotional content does not trivialise the risks of trading in DPTs. Any such content must also include a risk warning statement that highlights the risks associated with trading in DPTs to all customers and potential customers. Thus, sharing the anecdotes of existing clients who benefited from trading in DPTs in public areas, or through broadcast media, is not allowed as these seek to appeal to the general public by suggesting that investing in DPTs is promising.
Provision of DPT services in public areas
Consistent with the prohibition against promoting DPT services to the general public, DPT service providers are also prohibited from providing in-person access to DPT services in public areas through automated teller machines (ATMs).
Doing so is considered a form of prohibited promotion of DPT services. MAS is of the view that by providing such convenient access, your business can mislead the public into engaging in DPT trading without adequate information as to the risks and complexities, contrary to the Guidelines.
If your business has already installed ATMs that provide the public with access to the DPT services, these ATMs should be removed as soon as possible. For example, soon after the Guidelines were issued in January 2022, ATMs offering services to trade Bitcoins and Ether, which are popular forms of DPTs, were immediately shut down from various central locations in malls such as Clarke Quay and Raffles Boulevard.
Provision of services relating to DPT-related products
Besides services directly concerning the trading of DPTs, the Guidelines also address the provision of services relating to DPT-related products such as payment token derivatives (PTDs), which are derivatives contracts that reference DPTs as underlying assets.
Derivatives contracts refer to any contract or arrangement requiring a party to discharge certain obligations at some time in the future, and where the value of which is determined by reference to the value or amount of certain “underlying assets. In the case of PTDs, DPTs constitute such “underlying assets”.
If your business offers services in PTDs as described above, the Guidelines state that businesses should not promote PTDs as a convenient unregulated alternative to DPT trading to the general public. This means that you should not encourage the general public to engage your PTD services by soliciting customers, or by advertising your PTD services through avenues accessible to the general public.
Beyond the promotion of any PTD products you may offer, where customers do engage your PTD services, you should take all necessary steps to ensure that customers do not confuse such services as being regulated by the MAS. This is because PTD services can be offered only through legal entities that are not licensed under the PSA.
Are DPT Service Providers Required to Comply with the Guidelines?
The Guidelines detail various recommendations that businesses offering DPT services should comply with. However, these Guidelines are not legally binding in themselves. Nevertheless, this does not mean that there will be no legal implications for not complying with the Guidelines.
What are the Potential Consequences of Not Complying with the Guidelines?
While the failure to comply with the Guidelines does not of itself render your business liable to criminal proceedings, any such failure may potentially provide a basis for legal proceedings against your business. In turn, your business may be subject to consequences based on the findings of a court or a relevant legal authority, such as the payment of compensation.
The rise in DPTs may be seen as presenting highly accessible opportunities for all. That said, it is important to note the various rules regulating the provision of DPT and DPT-related products, as well as the concerns underlying them, if you are offering or are planning to offer DPT services in Singapore.
It is also important to note that the landscape for DPT services is rapidly changing and that the Guidelines issued by the MAS are subject to modifications as the government deems necessary.
In view of such potential developments, it is advisable to consult a Singapore fintech lawyer experienced in this area to ensure that any DPT or PTD services your business offers, or intends to offer in the future, in Singapore remains within legal limits at any given point.
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