Name
Global FinTech Guide
Country _ Name
Singapore
SectionTitle
ICO/token sale
Body
Companies and projects have increasingly relied on the sale of digital assets, or tokens, as a means of fundraising. These tokens generally do not grant the holders an ownership interest in the issuing company or project, but may provide governance rights, access rights or other utility. This has been conducted through public sales known as initial coin offerings (ICOs), proliferation through token generation events (TGEs) or private sales, among other mechanisms.  While showing characteristics of traditional methods of fundraising, there are a range of unanswered questions related to the legal classifications of such products. As ICOs and TGEs will usually be distributed online and internationally, there is usually no single legal framework applying to such transaction, and the legal framework of each market in which the tokens may be offered or sold needs to be considered.

Introduction

Attitude of the country towards ICOs/token sales

ICOs and token sales are a recognized method of fundraising in Singapore and there is existing regulatory framework governing these activities. Singapore was widely lauded as the third largest ICO hub in 2017 and 2018, but there has been limited data since then on whether it has maintained this favourable environment and position.

The regulatory framework for these activities has also developed significantly since then, with the Monetary Authority of Singapore (MAS) imposing clearer regulations and market players becoming more aware of the regulatory limitations of ICO activities. The MAS has actively taken steps for enforcement, such as in 2018 when it issued a warning to an ICO issuer that the MAS determined contravened the Securities and Futures Act 2001 (SFA) for issuing digital tokens comprising “securities” under the SFA without a MAS-registered prospectus.


Legal affairs

Presence of any explicit regulation on ICOs and the issuance of token/coins

Persons who make initial coin offerings comprising “securities”, “securities-based derivatives contracts” and “units in a collective investment scheme” will be subject to prospectus requirements compliant with the SFA. In the case of a unit in a collective investment scheme, there are additional authorization or recognition requirements under the Securities and Futures (Offers of Investments) (Collective Investment Schemes) Regulations 2005.
The ICO can be exempted from prospectus requirements if:

  • the offer is a small offer that does not exceed S$5 million (or its equivalent in a foreign currency) within any 12-month period;
  • the offer is a private placement offer that is made to no more than 50 persons within any 12-month period; or
  • the offer is made to an institutional investor only or accredited investor only.
Where the tokens are transferred, stored as part of the services of the company or used in any other services provided by the company, it may be subject to licensing requirements under the Payment Services Act 2019 (PSA) or Securities and Futures Act 2001 (SFA).

Presence of any explicit restrictions on ICOs or the issuance, distribution and/or transfer of token/coins
The payment services that include the transfer of tokens/coins may be regulated as a “digital payment token service” under the PSA, which is defined as:

  • any service of dealing in digital payment tokens (other than any such service that the Authority may prescribe);
  • any service of facilitating the exchange of digital payment tokens (other than any such service that the Authority may prescribe);
  • any service of accepting (whether as principal or agent) digital payment tokens from one digital payment token account (whether in Singapore or elsewhere), for the purposes of transmitting, or arranging for the transmission of, the digital payment tokens to another digital payment token account (whether in Singapore or elsewhere);
  • any service of arranging (whether as principal or agent) for the transmission of digital payment tokens from one digital payment token account (whether in Singapore or elsewhere) to another digital payment token account (whether in Singapore or elsewhere);
  • any service of inducing or attempting to induce any person to enter into or to offer to enter into any agreement for or with a view to buying or selling any digital payment token in exchange for any money or any other digital payment token (whether of the same or a different type);
  • any service of safeguarding a digital payment token, where the service provider has control over the digital payment token;
  • any service of carrying out for a customer an instruction relating to a digital payment token, where the service provider has control over the digital payment token;
  • any service of safeguarding a digital payment token instrument, where the service provider has control over one or more digital payment tokens associated with the digital payment token instrument; or
  • any service of carrying out for a customer an instruction relating to one or more digital payment tokens associated with a digital payment token instrument, where the service provider has control over the digital payment token instrument;
Any persons providing a digital payment token service must hold a licence under the PSA.

Obligations and requirements to issue token/coins

ICOs comprising the offering of securities or securities-based derivatives contracts must be accompanied by a MAS-registered prospectus which much be compliant with the requirements as set out under the SFA.

Classification of token/coins in the jurisdiction

A token/coin may be classified as either a digital payment token under the PSA or a capital markets product under the SFA, or unregulated if it does not fall within either definition and the regulated scope of activities.
“Digital payment token” is defined under the PSA to mean any digital representation of value (other than an excluded digital representation of value) that (a) is expressed as a unit; (b) is not denominated in any currency, and is not pegged by its issuer to any currency; (c) is, or is intended to be, a medium of exchange accepted by the public, or a section of the public, as payment for goods or services or for the discharge of a debt; and (d) can be transferred, stored or traded electronically. The PSA and its subsidiary legislation is generally regarded as the primary legislative framework for the regulation of cryptocurrency.

“Capital markets products” are defined as any securities, units in a collective investment scheme, derivatives contracts and spot foreign exchange contracts for the purposes of leveraged foreign exchange trading. If a token is classified as a capital market product, dealing in such product is regulated activity under the SFA that will require a capital markets services (CMS) licence.

Presence of a duty to publish a prospectus bevor offering token/coins to investors

As mentioned above, ICOs comprising the offering of securities or securities-based derivatives contracts must be accompanied by a MAS-registered prospectus.

Presence of AML/KYC requirements that are needed to be fulfilled regarding (i) the initial issuance of token/coins and (ii) any following transfer of token/coins to third parties

Where an entity is a holder of a CMS licence, it is required to comply with AML/KYC requirements under Notice SFA 04-N02 to Capital Markets Intermediaries on Prevention of Money Laundering and Countering the Financing of Terrorism. As for holders of a payment services licence, it is required to comply with Notice PSN02 Prevention of Money Laundering and Countering the Financing of Terrorism – Digital Payment Token Service.

Additional comments regarding (i) the legal situation for ICOs/token/coins and (ii) any following transfer of token/coins to third parties

N/A


Economic conditions

Market size for ICOs/token sales and existence of any previous regulated ICO/token sales in the jurisdiction

There is no official data on the market size for ICOs/token sales, and it is not yet clear what the impact has been on the market after the clarifications of the MAS on the ICO/token sales regulatory framework.

Additional comments regarding the economic situation for ICOs/token sales or what companies must be aware of in this business area

N/A

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