Overview of Cryptocurrency Regulations in Singapore

Is crypto legal in Singapore?

It is legal to own and exchange cryptocurrencies in Singapore. The Payment Services Act, 2019, defines crypto as a medium of exchange. This means that crypto can be used to purchase goods and services as well as discharge a debt. For companies that are directly dealing with cryptocurrencies — whether providing an exchange platform, custody, or other operations — robust Know Your Customer (KYC), Anti-Money Laundering (AML), and Combating the Financing of Terrorism (CFT) procedures have to be put in place to ensure compliance with the PSA.

The Monetary Authority Singapore (MAS) governs crypto as digital payment tokens (DPT). The MAS defines DPTs as a “broad category of digital representations of money, whether or not generated by blockchain.” A digital payment token is any digital representation of value that —

• is expressed as a unit;
• is not denominated in any currency, and is not pegged by its issuer to any currency is, or is intended to be, a medium of exchange accepted by the public, or a section of the public, as payment for goods or services or for the discharge of debt;
• can be transferred, stored, or traded electronically; and
• satisfies such other characteristics as the Authority may prescribe

Broadly speaking, crypto falls under two categories: e-money and digital payment tokens. E-money is a digital representation of a single fiat currency, backed by stores of the equivalent value in the fiat currency, and is considered legal tender—recognized by courts of law for payment. The StraitsX SGD (XSGD) token is one such example. DPTs, on the other hand, are representations of value without reference to fiat currency. 

Singapore regulatory bodies governing crypto

The MAS is Singapore’s central bank and financial regulatory authority. The MAS is empowered by the Monetary Authority of Singapore Act to set regulations and supervise the city’s banking, capital markets, insurance, and payments sectors. The MAS is in charge of supervisory oversight of financial-sector regulations, which include regulations for the cryptocurrency sector. The Singapore Dollar (SGD) is also issued by the MAS. 

AML/KYC requirements for Singapore crypto businesses

The PSA is the key legislation that governs crypto in Singapore. One key focus area is AML/CFT, which is dealt with by Notice PSA-N02. On 5 December 2019, the MAS published an amendment to the PSA 2019 that focused on crypto assets titled “Notice PSN02 Prevention of Money Laundering and Countering the Financing of Terrorism – Digital Payment Token Service.” The PSN02 guidance, which came into effect on 28 January 2020, puts in place robust AML/CFT guidelines and regulations to detect and stop the illegal flow of cryptocurrency funds through Singapore. The regulation includes implementing measures such as KYC processes (including beneficial ownership, defined as the natural person or persons "who ultimately own or control a legal entity or arrangement, such as a company, a trust, or a foundation"), account reviews, and suspicious transaction monitoring and reporting.

The AML/CFT procedures and policies should include

• Risk Bucketing: Obliged entities must carry out risk assessments of their users.
• Customer due diligence (CDD): Crypto businesses are required to create a customer acceptance policy. In order to do this, they have to differentiate between normal customers and customers that pose higher risks. Additionally, crypto businesses are also required to obtain information that can uniquely identify the customers such as their residential address, registered/business address, date of birth, date of incorporation of business, nationality, and place of occupation.

• Enhanced due diligence measures (EDD): Crypto businesses should conduct enhanced due diligence for customers who have been identified as ‘higher risk for AML/CFT. These include both politically exposed persons [PEP] and customers from jurisdictions with inadequate AML/CFT regulations.

• Transaction monitoring: Crypto businesses must monitor counterparties for unusual transaction patterns as indicators for money laundering and/or terrorist financing red flags.

• Suspicious transaction reports (STRs): Crypto businesses must send STRs to the Commercial Affairs Department of the Singapore Police Force, and the MAS, with a formal internal escalation process in place. Companies must also keep detailed records of users for AML/CFT checks.
• Recordkeeping: Crypto businesses are also required to conduct regular account reviews to keep a track of suspicious activities. They should ensure that proper records of CDD and EDD are maintained and that the customer information is updated regularly. Further those customers who are deemed as having higher AML/CFT risk should be reviewed on a more frequent basis. Further, they must ensure that the information is stored, collected, maintained, and updated in accordance with the Personal Data Protection Act of Singapore.

The Travel Rule requirement

In Singapore, the Travel Rule is implemented through Notice PSNO2. The Travel Rule came into effect on January 28, 2020. Under the Travel Rule requirements, crypto businesses are required to submit originator and beneficiary information to the beneficiary. Though the MAS has not stipulated the threshold for the Travel Rule to apply; however, for transactions below SGD 1,500.00, only the following information is required to be shared:

• Name and account number of the originator
• Name and account number of the beneficiary

For transactions exceeding SGD 1,500, the following information must be provided 

• Residential and business address of the originator
• Unique identification number of the originator
• Date of birth/incorporation of the originator
• Place of birth/incorporation of the originator

• Name of the beneficiary of the originator
• Account number or unique transfer reference number of the beneficiary.

Licensing requirements

Crypto businesses have to apply for the digital payment service providers license. For Singaporean DPT Services, the MAS has opted for an activity-based licensing system that also considers ML/TF risks rather than a one-size-fits-all licensing regime. The activity-based licensing tiers are more sensitive and versatile, allowing the MAS to keep up with the rapid development of digital payment systems without stifling technological advancement.

The PSA provides an umbrella license for seven distinct activities:

• Account issuance services
• Merchant acquisition services
• E-money issuance services
• Cross border money transfer services
• Domestic money transfer services
• Digital payment token services
• Money changing services

Stablecoins regulations

The Payment Service Act (PSA) regulates stablecoins as e-money. E-money is a digital representation of a single fiat currency that represents a claim on its issuer. Issuers of digital tokens that can be classified as e-money (stablecoins) will require a PSA license, as such activity would constitute an e-money issuance service. However, the e-money definition does not cover algorithmic stablecoins, non-collateralized stablecoins, or commodity-collateralized stablecoins In light of the emergence of new forms of stablecoins, on December 23, 2019, MAS issued a stablecoin consultation paper seeking public consultation on the scope of money, e-money, and digital payment tokens (DPTs), as well as the regulation of payment services based on these emerging forms of payment

On October 5, 2020, StraitsX — a  Major Payment Institution (MPI) licensed by the MAS for e-money issuance — released XSGD. XSGD is a Travel Rule-compliant stablecoin backed 1:1 with the Singapore dollar. Under its MPI license, StraitsX can mint an unlimited amount of XSGD tokens while the corresponding fiat is held and safeguarded in segregated accounts with a fully regulated MAS approved bank.