The regulatory framework for Digital Assets and Cryptocurrencies (Crypto) has been rapidly evolving. Regulators expect that firms play their part to ensure that investing in crypto is as safe as possible for investors and customers or else enforcement will be pursued.
The U.S. Securities and Exchange Commission (SEC) has played a central role in regulating digital assets. The regulator has been working on rules, guidance and enforcement actions. We covered the latest SEC developments with Thomson Reuters during the webinar “Diving into Crypto Regulation”.
Since July 2021, securities regulators in five U.S. states have brought enforcement cases against BlockFi and its affiliates related to lending and borrowing in interest-bearing cryptocurrency accounts claiming the accounts are unregistered securities violating state securities laws.
In February 2022, the SEC then applied the most significant penalty ever assessed in a crypto enforcement action. BlockFi was fined $100 million over allegations it illegally offered a product that pays customers high-interest rates to lend out their digital tokens.
“Crypto lending platforms offering securities like BlockFi’s BIAs should take immediate notice of today’s resolution and come into compliance with the federal securities laws,” said SEC enforcement director Gurbir Grewal on Monday, February 14th 2022.
The SEC is not the only regulator to develop regulation related to Crypto and Digital Assets, as several regulators have been working to publish updated legislation and regulation to broaden their remit to cover digital assets in Canada, Australia, and Singapore.
Developments and Regulatory Efforts in Singapore
The development of regulation in Singapore for the Digital Assets, Cryptocurrencies and Fintech has been steadily occurring over the last few years. In addition, we are starting to see trends in Surveillance and Enforcement.
The Monetary Authority of Singapore (MAS) has been an early adopter by enacting the Payment Services Act of 2019.
The Payment Services Act is considered a forward-looking and flexible framework for regulating payment systems and payment service providers in Singapore. The PSA requires a person who carries a business in relation to crypto to obtain a license to operate.
Under the PSA, there are a few requirements for applicants to be granted the license, and under the Securities and Futures Act (SFA), could potentially have similar features as other capital market products such as securities, units in a collective investment scheme (CIS), over-the-counter (OTC) derivatives, exchange-traded derivatives and spot foreign exchange for the purposes of leveraged foreign exchange trading.
Following its introduction, in late 2021, MAS placed Binance.com (different from Binance.sg) on an Investor Alert List for soliciting funds from Singapore residents without an appropriate license under the Payment Services Act, as part of which they had to cease products. In response, Binance.com ceased various Singapore dollar services.
In early 2022 the legislative environment and high rate of cryptocurrency adoption changed when MAS issued a new circular curbing advertising and third party promotions and caused ATM operators to shut down.
As of now, the Singapore regulator has not backed any cryptocurrency for retail use. And in January 2022, MAS has issued guidelines to discourage cryptocurrency trading by the general public. Chris Holland, a partner at regulatory consulting firm Holland & Marie, noted: “The MAS has stated that DPT service providers should conduct themselves with the understanding that trading of DPTs is not suitable for the general public. Beyond advertising restrictions, we anticipate industry participants to start implementing suitability tests to ensure customers understand the risks of cryptocurrencies.”
On the 14th February 2022, the MAS released their Explanatory Brief on the Financial Services and Markets Bill 2022 which is before Parliament. This brief if passed will enable enhanced regulation related to Anti-Money Laundering and Counter Terrorism for Virtual Asset Service Providers who may not be providing services to Singapore but are registered here. This extends beyond any Virtual Asset Service Provider who is already registered with MAS.
Nizam Ismail, CEO of regulatory compliance firm Ethikom, comments “The long-anticipated Bill highlights MAS’ position in maintaining the reputation of Singapore as a financial centre and seeks to implement licensing and AML/CFT measures on Singapore-based companies which could previously be leveraging on Singapore’s financial centre status but operating without a licence. This gap is now plugged.”
From these developments, we can see that the Monetary Authority of Singapore is seeking to ensure fast progress in the global crypto industry and monitoring the situation closely to ensure regulations are in place and risks well managed. Therefore, we should see more regulations and enforcements around digital assets in Singapore and other countries with these fast developments.
What the fast-paced crypto space in Singapore means for Financial Services Firms?
Regulators will likely add digital assets to the list of reportable securities, and regulated firms should be prepared to manage digital asset trading and capture crypto asset trade executions.
MCO provides a mature process for managing conflicts of interest around digital assets, the preclearance, monitoring and certification of digital assets transactions as part of MyComplianceOffice’s Personal Trade Manager solution.
MyComplianceOffice enables firms to manage conflicts of interest in the same way with traditional securities, enabling employees to pre-clear personal trades across a broad range of digital assets.
Learn more about Crypto Regulation Compliance and what MCO can do for your firm.