The MAS has recently issued a consultation paper ("CP") on the proposed regulations, notices and guidelines to be issued to digital token service providers ("DTSPs") in order to effect the objectives of Part 9 of the Financial Services and Markets Act 2022 (“FSM Act”), which provides for the regulation of DTSPs which comprise: (a) individuals and partnerships who, from a place of business in Singapore, carry on a business of providing a digital token service outside Singapore; and (b) Singapore corporations that carry on a business, whether from Singapore or elsewhere, of providing a digital token service outside Singapore. This regime was enacted further to the Financial Action Task Force's enhanced standards which required virtual asset service providers to be at least licensed / registered in the jurisdiction where they are created.
Given the nature of the DTSPs which would be regulated under Part 9 of the FSM Act, MAS' view is that such persons may be more susceptible to money laundering or terrorism financing risks and is particularly cautious about their limited nexus to Singapore and activities outside Singapore. To address this risk, MAS has indicated that it would approach the licensing of such DTSPs in a prudent and cautious manner and will review applications on a case by case basis. In particular, the applicant would need to be able to show that it has a business model that makes economic sense, and is able to demonstrate that it has valid reasons as to why it does not intend to carry on a business of providing digital token services in Singapore despite operating in or being formed or incorporated in Singapore.
The CP also outlines MAS' proposals with respect to various requirements that would apply to DTSPs regulated under the FSM Act – these include financial and ongoing business conduct requirements, anti-money laundering and counter-terrorism financing related requirements, ongoing reporting requirements, technology risk management and cyber hygiene related requirements.
The CP is accessible here and the consultation will close on 4 November 2024. Our Financial Services Regulatory Practice has advised on a broad range of issues that concern Financial Institutions. Reach out to our Partners Elaine Chan, Rosabel Ng, Chan Jia Hui, Tian Sion Yoong, or find out more about our practice here.