Well known for its strict laws and regulations, Singapore has an open but pragmatic approach to cryptocurrency. While the city-state does not recognise any cryptocurrencies as legal tender, it has allowed cryptocurrency exchanges and trading. The country’s central bank and financial regulator, the Monetary Authority of Singapore (MAS), implemented the Payment Services Act in January 2020 which required crypto exchanges and other crypto-related businesses to obtain licenses to operate in the country.
While the government looks to create a conducive regulatory environment around crypto, it is mindful of potential risks involved such as financial fraud and money laundering. Singapore has robust anti-money laundering and counter-financing of terrorism (AML/CFT) controls in place to prevent the abuse of digital payment tokens in the country.
Is cryptocurrency legal in Singapore?
In Singapore, cryptocurrencies are legal as an asset, but they are not legal tender. The country regulates businesses dealing in cryptocurrencies who are mandated to get a license to operate in the country. Singapore has specific regulations related to initial coin offerings (ICOs), taxation of cryptocurrencies, AML/CFT and the methods of buying and trading in virtual assets.
- ICOs: The Securities and Futures Act (SFA) regulates ICOs in Singapore. As per the act, companies that are looking to conduct ICOs in Singapore should obtain a Capital Market Service license.
- Taxation of crypto assets: The Inland Revenue Authority of Singapore (IRAS) classifies cryptocurrencies as Digital Payment Tokens (DPTs). Profits made from long-term investments in cryptocurrencies or capital gains are not taxed. However, If the profit is derived from trading virtual assets regularly in the course of normal business activity, then it is taxable.
- Taxation on crypto payments: When cryptocurrencies are used to pay for goods and services, the providers of goods and services will be taxed (under the current rates) on the value of the goods or services provided. Payments using cryptocurrencies are considered barter transactions.
- AML/CFT: Singapore has strict crypto AML/CFT laws on par with other regulated financial institutions. Crypto entities should carry out know-your-customer (KYC) checks as part of customer due diligence (CDD) to verify users before onboarding them. They need to identify the beneficial owners and take measures to verify the identities of beneficial owners. They also have the obligation to report suspicious transactions under the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act.
- Trading in cryptocurrencies: Crypto exchanges in Singapore are covered by the Payment Services Act. As per the act, exchanges dealing in virtual currencies are to be licensed and regulated by the MAS.
The Payment Services Act (PSA)
The Payment Services Act (PSA) came into effect on 28 January 2020. It provides the licensing and regulation of payment service providers, including digital token-based payments, the oversight of payment systems, and connected matters. It also repealed the Money-changing and Remittance Businesses Act and the Payment Systems (Oversight) Act in the country.
The PSA comprises two parallel regulatory frameworks:
The Designation framework for significant payment systems: It enables MAS to designate significant payment systems and regulate operators, settlement institutions and participants of these designated payment systems for financial stability reasons as well as for efficiency reasons.
Licensing framework for payment service providers: It is a licensing regime that will enable MAS to regulate the provision of payment services. Providers of payment services will be required to hold a licence under the Act in respect of the type of payment service that is provided.
Learn More: Bank Secrecy Act
Learn More: Money Laundering Risks in Malaysia
On 4 January 2021, the MAS introduced a few amendments to the PSA to align with changes to international standards and to better mitigate AML/CFT risks. The new amendments included the transfer of DPTs, provision of custodial wallet services for DPTs, and the facilitation of the exchange of DPTs without possession of monies or DPTs by the DPT service provider in the definition of DPT service providers. The amendments also gave the MAS powers to better regulate DPT service providers.
The Securities and Futures Act (SFA)
DPTs also come under the purview of the Securities and Futures Act (SFA) if they constitute capital market products. The products include securities, units in a collective investment scheme, derivatives contracts and spot foreign exchange contracts for purposes of leveraged foreign exchange trading, according to the act.
Accordingly, any ICOs will need to have a prospectus in accordance with the SFA, and the offer should be registered with the MAS. In addition, entities looking to establish or operate a DPT exchange are required to be licensed as an exchange and/or capital market services licence holder.
Cryptocurrency Mining in Singapore
Singapore does not have any regulations at present with regard to the mining of cryptocurrencies. However, profits from cryptocurrency mining services rendered in exchange for money are subject to income tax.
While there may not be a competitor to the currency in terms of laundering volume at present, the ever-increasing use of cryptocurrency and their unregulated or less-regulated nature in many jurisdictions mean that the financial world has a lot to worry about. Many large companies now accept the digital currency for payments of products and services. Cryptocurrency really has the potential to replace its paper and plastic variants. Therefore, it is important to analyse the loopholes enabling these currencies to be used for money laundering and to develop adequate counter technologies to combat the crime.
Money service businesses (MSBs) need to have a well-designed AML compliance programme. This should be a well-balanced combination of compliance personnel and technology. Having an in-house compliance team may be feasible only for large MSBs. However, the same is usually very expensive and impractical for smaller firms. They would have to rely more on highly intelligent process automation tools and platforms to sift out illegitimate transactions from large data sets.
Learn More: Importance of Regtech
How can we help crypto businesses?
Tookitaki developed a first-of-its-kind Typology Repository Management (TRM) framework to effectively solve the shortcomings of the static rules-based AML transaction monitoring environment that traditionally exists. It’s also a first of its kind software that uses collective intelligence instead of data that works in silos. Through continual learning, TRM is an intelligent and efficient means of identifying money laundering. Financial institutions will be able to capture shifting customer behaviour and stop bad actors with high accuracy and speed using this advanced machine learning approach.
To learn more about our AML solution, speak to one of our experts here.
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