As a cryptocurrency friendly country compared to its neighbors, Singapore is being active in developing and enhancing the regulatory framework for cryptocurrency firms. It's all about balance between regulations to ensure consumer protection and keeping attractive projects.
To help crypto companies doing business, Scorechain provides a clear overview of the state of the regulation inside the Lion City.
KEY TAKEAWAYS:
- The Payment Services Act came into force in 28 January 2020, Crypto firms are under MAS’s regulatory scope;
- Crypto firms should comply with AML & CTF requirements;
- A list of cryptocurrency firms has been published to exempt them from holding a payments license in Singapore until 28 July 2020;
- New e-tax guide for digital tokens was published, payment tokens are taxable except airdrops or hard forks; utility tokens are deductible; security tokens are taxable only when classified as a “revenue asset"; ICOs issuing utility tokens are taxable as soon as they deliver the goods.
January 2020: The Payment Services Act came into force, crypto firms are under MAS’s regulatory scope.
On 28 January 2020, Singapore’s central bank and financial regulator, the Monetary Authority of Singapore (MAS) announced that the Payment Services Act (PS Act) came into effect.1 With its commencement, the Money-changing and Remittance Businesses Act and the Payment Systems (Oversight) Act were repealed.
The new act adopts an activity-based licensing framework covering the following payment services:
(i) an account issuance service;
(ii) a domestic money transfer service;
(iii) a cross‑border money transfer service;
(iv) a merchant acquisition service;
(v) an e‑money issuance service;
(vi) a digital payment token service;
(vii) a money‑changing service.2
The cryptocurrency services fall under the 6th category: digital payment token service (DPT services), which means that the PS Act expands the MAS’ regulatory scope to include cryptocurrencies.
Crypto businesses should register and then apply for a license to be able to operate in the country, such as a money-changing licence, a standard payment institution licence or a major payment institution licence. They must also comply with the Financial Advisers Act, Insurance Act, Securities and Futures Act and the Trust Companies Act.
March 16th 2020: Guidelines to Notice PSN02 for DPT service providers on AML & CTF requirements
Back to December 2019, MAS published the Notice PSN02 to require DPT service providers to prevent money laundering and the financing of terrorism risks, which took effect from 28 January 2020.
In Notice PSN02, DPT service providers are required to set up robust controls to detect and prevent any illicit funds from the country’s financial system, inducing identifying and knowing their customers (also beneficial owners), conducting regular account reviews, monitoring and report any suspicious transactions:
- Risk assessment and risk mitigation: DPT service providers should identify and assess the money laundering and terrorism financing risks on an enterprisewide level: including its existing products, services, transactions and delivery channels.
The risk assessment serves to guide the allocation of AML/CFT resources by the payment service provider. They should take necessary steps, such as documenting/updating their risk assessments, reporting the information to the Authority, developing, implementing and enhancing internal policies, procedures and controls.
- Customer due diligence: identify and know their customers including beneficial owners.
- Reliance on third parties.
- Correspondent accounts and wire transfers.
- Record keeping.
- Suspicious transaction reporting: submit reports on suspicious transactions (including attempted transactions) regardless of the amount of the transaction, to STRO (Suspicious Transaction Reporting Office, Commercial Affairs Department of the Singapore Police Force) and extend a copy to the Authority for information, keep records of the reporting with internal findings and analysis.
- Internal policies, compliance, audit and training: develop and implement adequate internal policies, procedures and controls, arrange appropriate compliance management including at least an AML/CFT compliance officer at the management level. 3
In March 2020, MAS published the guidelines in conjunction with the Notice PSN02 to lead DPT service providers to fulfill the requirements with more detailed explanation. 4
For example, the board of directors and senior management of a crypto firm are responsible for ensuring strong governance and sound ML/TF risk management and controls. They should also set a clear risk appetite and ensure a strong compliance culture in the whole company.
3 lines of defences are defined in the guidelines: front office customer-facing functions; the AML/CFT compliance function, as well as other support functions such as operations, human resource or technology; internal audit function or external audit firm.
The documentation of the firm should include the enterprise-wide ML/TF risk assessment, details of its implementation and controls, the reports to senior management on its results, and details of the frequency of review of the risk assessment, which should be reviewed at least once every two years or when big events occur (such as the acquisition of new customer segments or delivery channels, or the launch of new products and services), whichever is earlier.
The degree of observance with these guidelines by a DPT service provider may have an impact on the Authority’s overall risk assessment of it, including the quality of its board and senior management oversight, governance, internal controls and risk management.
For more details, please review the guidelines here: https://www.mas.gov.sg/-/media/MAS/Regulations-and-Financial-Stability/Regulatory-and-Supervisory-Framework/Anti_Money-Laundering_Countering-the-Financing-of-Terrorism/Guidelines-to-PSN02-on-Prevention-of-Money-Laundering-and-Countering-the-Financing-of-Terrorism--DPT.pdf
End of March 2020: License exemption for a number of firms until 28 July 2020.
On 27 March, MSA published an extensive list of cryptocurrency firms to exempt them from holding a payments license in Singapore until the end of July. Some famous exchanges like Coinbase and Binance are on the list.5
Thanks to this temporary exemption, these companies are allowed to continue operating without a payments license, but they must comply with the new Payment Services Act before the deadline.
The exemption will cease by the deadline; if the firm submits a licence application under the PS Act, the exemption will stop on the date when the application is approved/rejected, or withdrawn by the applicant.
April 2020: New e-tax guide for digital tokens was published.
On 17 April 2020, The Inland Revenue Authority of Singapore’s (IRAS) released a new e-tax guide for different kinds of digital tokens : 6
- Payment tokens are taxable except airdrops or hard forks;
- Utility tokens are deductible;
- Security tokens are taxable only when classified as a “revenue asset";
- ICOs issuing utility tokens are taxable as soon as they deliver the goods.
Scorechain is helping crypto firms in Singapore to fulfill their compliance requirements.
As a leader in cryptocurrency transaction monitoring software for AML/CTF compliance and already serving firms in the APAC region, Scorechain software is helping compliance teams to answer regulatory requirements and to implement a risk based approach by saving cost and time.
With Scorechain Blockchain Analytics, users receive quality and documented information to assess the ML/TF risks their business is exposed to and if their AML/CFT controls are adequate and effective. They can also use the software for reporting suspicious activity.
As mentioned in the Guidelines, ongoing monitoring of business relations is fundamental to an effective AML/CTF risk management system. Scorechain transaction monitoring tool provides its users with timely information needed to identify, analyse and effectively monitor customers for ML/TF.
The software also allows companies to perform risk analysis with advanced risk features for risk assessment, key risk indicator redflag and risk scoring that can be customized depending on business nature and internal framework controls.
Enhanced monitoring should be conducted for higher risk situations and extend beyond the immediate transaction between the DPT service provider or its customer/counterparty. For example, the firm may need to trace previous transactions as far back as necessary to reasonably assess whether the circumstances are abnormal or suspicious. Scorechain solution conducts deep analysis and the algorithm runs to trace back the source of the funds, for example, 1000 hops at maximum for Bitcoin/Bitcoin cash/Litecoin/Dash transactions.
With the fast-changing crypto industry, the regulations are keeping moving. Scorechain is continuously improving its products to adapt to the evolving regulations, to help customers to fulfill regulatory requirements, and to facilitate their compliance team’s work.
To know more about our products, welcome to contact us: contact@scorechain.com
------
References:
1. https://www.mas.gov.sg/news/media-releases/2020/payment-services-act-comes-into-force
2. Payment Service Act: https://sso.agc.gov.sg/Acts-Supp/2-2019/Published/20190220?DocDate=20190220
3. https://www.mas.gov.sg/regulation/notices/psn02-aml-cft-notice---digital-payment-token-service
Notice PSN02 Prevention of Money Laundering and Countering the Financing of Terrorism – Digital Payment Token Service, Dec 5th 2019 https://www.mas.gov.sg/-/media/MAS/Regulations-and-Financial-Stability/Regulatory-and-Supervisory-Framework/Anti_Money-Laundering_Countering-the-Financing-of-Terrorism/PSN02-Prevention-of-Money-Laundering-and-Countering-the-Financing-of-Terrorism--Digital-Payment-Toke.pdf
4.https://www.mas.gov.sg/regulation/guidelines/guidelines-to-notice-psn02-on-aml-and-cft---dpt
5.https://www.mas.gov.sg/regulation/payments/entities-that-have-notified-mas-pursuant-to-the-ps-esp-r
6. IRAS e-Tax Guide - Income Tax Treatment of Digital Tokens: https://www.iras.gov.sg/irashome/uploadedFiles/IRASHome/e-Tax_Guides/etaxguide_CIT_Income%20Tax%20Treatment%20of%20Digital%20Tokens.pdf
