Unlicensed Singaporean corporate entities dealing with offshore cryptocurrency customers must either acquire a license or depart from the market.
The Monetary Authority of Singapore (MAS) has announced new regulations that will significantly affect offshore crypto and stablecoin firms. These regulations, which have been in the works for some time, are designed to ensure that firms operating outside of Singapore comply with international regulatory standards and uphold the integrity of Singapore's financial system.
Impacted Firms and Licensing Requirements
The new regulations apply to offshore firms that target clients outside of Singapore, and not to those operating within Singapore. High profile firms Circle and Paxos, with their Singapore operations and licenses as Major Payment Institutions, are unaffected by the new regulations.
For offshore firms aiming to operate in Singapore's regulated crypto market, the main licensing requirement is the Digital Payment Token Service Provider (DTSP) license. This license, regarded as one of the highest-level cryptocurrency licenses granted by MAS, allows legal operation of crypto trading, custody, payments, and wallet services within Singapore's jurisdiction.
To obtain a DTSP license, firms must comply with a series of requirements. These include robust Know Your Customer (KYC) onboarding procedures, strict Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) policies, and adherence to retail trading rules. Firms must also demonstrate secure, resilient, and MAS-ready technology infrastructure, enforce the Travel Rule to track transfers involving virtual assets, and maintain sufficient capital and liquidity to cover operational risks.
Supervision Requirements and Debated Nuances
The supervision requirements for firms operating within Singapore are a key concern for the MAS. The debate on the nuances of what it means to be 'in Singapore' versus 'outside Singapore' highlights the complexity of the new regulations for offshore firms. Service providers active in Singapore must be licensed in accordance with the Payment Services Act.
The distinction between being 'in Singapore' and 'outside Singapore' is not solely based on servicing Singapore customers, but also on having operations within Singapore. Offshore-focused firms fall under the Financial Services and Markets Act.
The new regulations require offshore firms to either cease operations by the end of June 2025 or obtain a license, which MAS will grant rarely. The nuances of the distinction between 'in Singapore' and 'outside Singapore' have been debated by lawyers from Gibson Dunn, emphasizing the complexity of supervision requirements.
MAS's Concerns and Enforcement
MAS is concerned about the potential for money laundering by firms with main operations outside of Singapore. The new regulations are part of MAS's ongoing efforts to ensure the integrity of Singapore's financial system and protect clients.
Firms without the necessary licenses cannot be considered compliant players in Singapore. The MAS has announced the results of a consultation affecting Singapore crypto and stablecoin firms operating offshore, emphasizing the importance of compliance with the new regulations.
In October, MAS warned that there would not be a lengthy transition period for offshore firms to comply with the new regulations. Firms that fail to meet the requirements risk facing penalties, including fines and the revocation of their licenses.
Conclusion
The new regulations from MAS are a significant step towards ensuring the integrity of Singapore's financial system and protecting clients. Offshore firms must carefully consider the requirements and seek the necessary licenses to continue operating in Singapore's regulated crypto market. Firms without the necessary licenses risk facing penalties, including fines and the revocation of their licenses.
Offshore crypto and stablecoin firms, targeting clients outside of Singapore, need to comply with the new regulations introduced by MAS to maintain the integrity of Singapore's financial system. To do so, they might need to obtain a Digital Payment Token Service Provider (DTSP) license, a rigorous licensing requirement that encompasses stringent KYC procedures, AML/CFT policies, and operational risk management practices.
failing to comply with these regulations can lead to penalties, including fines and the revocation of their licenses, as part of MAS's ongoing effort to protect clients and ensure the integrity of Singapore's financial system.