Singapore has established itself as a leading FinTech hub with a comprehensive regulatory framework for virtual assets. The country’s approach is risk-based and is primarily governed by the Payment Services Act 2019 (PSA), which brought all payment services, including those related to digital payment tokens, under the oversight of a single regulator.
Governing bodies and key history
The Monetary Authority of Singapore (MAS) is the sole regulator for all payment systems and payment service providers, including those dealing with virtual assets. The PSA, which came into effect on January 28, 2020, was a landmark piece of legislation that consolidated and modernized previous laws.
In 2022, the Financial Services and Markets Bill (FSMA) was introduced to align Singapore’s laws with international standards from the Financial Action Task Force (FATF). These amendments, which took effect in April 2024, expanded the scope of regulation to include a wider range of activities and introduced new requirements for digital payment token (DPT) service providers.
MAS has also been actively engaged in industry initiatives like Project Guardian, a collaborative effort with the financial industry and policymakers to explore asset tokenization and the potential of blockchain technology for financial markets.
The most recent text definition of key items
- Virtual Assets (VA): In Singapore, virtual assets are most commonly referred to as Digital Payment Tokens (DPTs). The PSA defines a DPT as any digital representation of value that is expressed as a unit, is not denominated in or pegged to any fiat currency, is a medium of exchange accepted by the public, and can be transferred, stored, or traded electronically.
- Virtual Asset Service Provider (VASP): Entities that provide DPT services are licensed as Digital Payment Token Service Providers (DPTSPs). The Payment Services Act (PSA) regulates a wide range of services, including the exchange of DPTs for fiat currency, exchange of one DPT for another, and the provision of DPT custodial services.
- Stablecoins: Stablecoins are subject to regulatory oversight by MAS. If a stablecoin’s value in circulation exceeds S$5 million, its issuer is required to be licensed as a Major Payment Institution under the PSA.
- Digital Token (DT): The Financial Services and Markets Act (FSMA) regime regulates digital tokens and defines a DT Service as including custodial, broking, exchange, and transmission services.
The key elements of their regulation
Singapore’s regulatory framework for virtual assets is comprehensive and aims to provide regulatory certainty while mitigating risks.
- Risk-Based Regulation: The MAS has adopted a risk-based approach to regulating the virtual asset space, particularly to combat threats like money laundering (ML), terrorism financing (TF), and proliferation financing (PF).
- Licensing Regimes: The regulatory framework operates under two main regimes:
- The Payment Services Act (PSA) regulates DPT services provided within Singapore.
- The Financial Services and Markets Act (FSMA) regulates digital token services provided from Singapore to customers outside of the country.
- AML/CFT Compliance: The MAS Notice PSN02 is the central framework outlining the binding anti-money laundering and counter-terrorism financing obligations for DPT service providers. These obligations are aligned with international standards from the FATF and include the “Travel Rule”.
- Safeguarding of Assets: New requirements introduced on October 4, 2024, empower the MAS to enforce rules on the segregation and custody of customer assets.
Requirements for the VASP
To operate as a DPT service provider in Singapore, an entity must obtain a license from MAS and adhere to several stringent requirements.
- Licensing: Entities providing DPT services must be licensed as a payment institution under the PSA. The two main types of licenses are Standard Payment Institution and Major Payment Institution, with the latter required if transaction thresholds are exceeded.
- AML/CFT Controls: Licensees must implement robust AML/CFT measures, including customer due diligence (CDD), enhanced due diligence for high-risk customers, ongoing transaction monitoring, and suspicious transaction reporting (STR).
- Operational Requirements: Licensees must have a permanent place of business in Singapore and at least one local resident director. They must also have a compliance function, although this can be outsourced to a qualified overseas entity.
- User Protection: The new regulations introduce enhanced user protection measures for the safeguarding of customer assets and money.
- Record-Keeping: VASPs must retain transaction and CDD information for at least five years and make these records available to MAS and law enforcement upon request.
What it means for the stakeholders
- Consumers and Investors: The regulations provide a high degree of consumer protection and regulatory certainty. By imposing strict controls on DPT service providers, MAS aims to mitigate risks like cybercrime, fraud, and financial crime.
- Financial Institutions: The clear regulatory environment has made Singapore a desirable location for FinTech companies and has encouraged traditional financial institutions to participate in the digital asset space. Initiatives like Project Guardian are helping to integrate blockchain technology with traditional finance, fostering collaboration between banks and fintechs.
- VASPs and Fintechs: Singapore’s framework is seen as a key advantage for companies looking to establish a VASP, offering a clear regulatory path and a strong reputation for compliance. However, the stringent AML/CFT and operational requirements can be challenging, particularly for smaller firms with legacy technology. Non-compliance can lead to severe penalties, including fines and license revocation.
Useful Links
- Monetary Authority of Singapore (MAS) – Payment Services Act: https://www.mas.gov.sg/regulation/acts/payment-services-act
- MAS – Virtual Assets Risk Assessment: https://www.mas.gov.sg/publications/monographs-or-information-paper/2024/virtual-assets-risk-assessment
- MAS – Project Guardian: https://www.mas.gov.sg/schemes-and-initiatives/project-guardian
- Rajah & Tann Asia – Enhanced Regulation for Singapore Virtual Asset Service Providers: https://yearinreview.rajahtannasia.com/publications/enhanced-regulation-for-singapore-virtual-asset-service-providers-vasps/
