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MAS clarifies stance on regulation of digital token offers

SINGAPORE — The Monetary Authority of Singapore (MAS) clarified on Tuesday (Aug 1) that it will regulate the issue and offer of digital tokens in Singapore if the digital tokens constitute products regulated under the Securities and Futures Act (SFA).

The MAS is currently assessing how to regulate money-laundering and terrorist-financing risks associated with activities involving digital tokens that do not function solely as virtual currencies. Photo: Reuters

The MAS is currently assessing how to regulate money-laundering and terrorist-financing risks associated with activities involving digital tokens that do not function solely as virtual currencies. Photo: Reuters

SINGAPORE — The Monetary Authority of Singapore (MAS) clarified on Tuesday (Aug 1) that it will regulate the issue and offer of digital tokens in Singapore if the digital tokens constitute products regulated under the Securities and Futures Act (SFA).

MAS’ clarification comes in the wake of a recent increase in the number of initial coin or token offerings in Singapore as a means of raising funds.

A digital token is a cryptographically-secured representation of a token-holder’s rights to receive a benefit or to perform specific functions.

A virtual currency is one particular type of digital token, which typically functions as a medium of exchange, a unit of account or a store of value.

MAS is currently assessing how to regulate money laundering and terrorist financing risks associated with activities involving digital tokens that do not function solely as virtual currencies. Digital tokens are vulnerable to money laundering and terrorist financing risks due to the anonymous nature of the transactions and the ease with which large sums of monies may be raised in a short period of time, noted the MAS in a statement.

“It is a timely reminder for those dealing with digital tokens not to allow for the possibility of money laundering and terrorist financing,” said Mr David Lee, Professor of Fintech and Blockchain, Singapore University of Social Sciences.

“Having said that, there are still a lot of scams out there that unless the public understand the technology or complexity, they should not be involved with initial coin offerings, token sales or cryptocurrency.”

In 2014, MAS had announced that while virtual currencies were not regulated, intermediaries in virtual currencies would be regulated for money laundering and terrorism financing risks.

“This is very positive for the start-up scene,” said Mr Lee, adding that token sales have solved a major pain point for start-ups and have exceeded US$1 billion (S$1.4 billion) sales this year. “Globally the most impactful and best use case of blockchain is token swaps or token sales that enable promising blockchain start-ups to have funding for their complex experiments.”

Blockchain is a form of distributed ledger technology. This means that it maintains records of all virtual currency transactions on a distributed network of computers, but has no central ledger.

Local shopping platform Ezbuy uses digital tokens – in particular virtual currency – which typically function as a medium of exchange, a unit of account or a store of value.

Co-founder of online shopping platform Ezbuy, Wendy Liu: “Digital money is certainly beneficial for us. From a business point of view, transactions are made in seconds. With stored money in the accounts, customers can use the credits to pay for any small amount without withdrawing constantly from their bank accounts. It saves a lot of hassle for customers and makes payments faster.”

Ms Liu estimates roughly 30 per cent of their customers use stored credits to make payments for purchases but was unable to provide ready data on total transactions facilitated by the stored value.

Fintech digital payments platform SoCash’s CEO Hari Sivan said: “From our perspective, digital payments are extremely important – the moving of money digitally – but we generally stay away from storing virtual money.

“Digital token – assigning money to something, is sometimes like a Ponzi Scheme. It makes sense for the usage of these representing ownership over an asset or property to be regulated and is the right thing to do, in case the start-up doesn’t deliver.”

MAS noted that the function of digital tokens has evolved beyond just being a virtual currency.

For example, digital tokens may represent ownership or a security interest over an issuer’s assets or property. Such tokens may therefore be considered an offer of shares or units in a collective investment scheme under the SFA. Digital tokens may also represent a debt owed by an issuer and be considered a debenture under the SFA.

Some startups here have been building their business on blockchain technology, using digital tokens - or “initial coin offerings” - as a means of raising funds. Investors are issued these tokens in exchange for Singapore dollars, with each token being entitled to the cashflow of the underlying real estate investment which it references.

Singapore-based startup incubator and platform Cofound.it recently raised nearly US$15 million of funds through token sales in a record pre-sale sell-out. ADDITIONAL REPORTING BY ANGELA TENG

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