Despite its stringent licensing process for financial services, Singapore is recognized as a global hub for fintech and possibly for crypto assets-related services too.
According to the Monetary Authority of Singapore (MAS), fintech investments in Singapore rose to US$3.9 billion in 2021, up from US$0.9 billion in 2019.
As fintech includes the development and use of cryptocurrencies, it’s no surprise that an increasing number of global crypto players have applied for and received approval for digital payment services in the country such as Blockchain.com, Crypto.com and Coinbase.
Another major digital asset platform that has obtained such regulatory approval is MetaComp. The company says it now offers a holistic, end-to-end suite of digital asset services to corporates as well as traditional and crypto-native institutional investors.
But the digital or crypto asset ecosystem in Singapore is more than just about cryptocurrency. For instance, MAS recently launched an initiative called Project Guardian to test the feasibility of applications in asset tokenization and Decentralised Finance (DeFi) while managing risks to financial stability.
Tokenization is a computerized process of digitally representing assets through a smart contract on a blockchain. This allows financial assets to be fractionalized and exchanged over the internet on a peer-to-peer basis.
MAS hopes that such project in tokenizing financial assets will not only boost the efficiency and accessibility of financial services but also strengthen its position as a global crypto hub.
Activity-based approach to regulation of crypto assets
Singapore’s evolving regulatory approach makes it one of the most comprehensive in managing risks of digital assets.
MAS regulates digital or crypto assets-related services and service providers on an activity basis rather than an entity-based approach.
Financial assets that represent a security such as a share or a bond are regulated under the Securities and Futures Act. Companies that conduct regulated activities under this act must hold a Capital Markets Services (CMS) license.
On the other hand, digital assets used as a means of payment are regulated under the Payment Services Act. Under this act, all providers of digital payment token (DPT) services operating in Singapore must be registered and licensed.
Amendments to the act were made in January 2021 to include more DPT activities such as providing custodial wallet services and facilitating the transfer of DPT.
To offer crypto-related services, DPT service providers must have the Major Payment Institution (MPI) licence. These DTP service providers include crypto exchanges, stablecoin players and traditional financial institutions.
Cryptocurrency platform Hodlnaut, for example, has recently received approval for the MPI. The licence regulates the platform’s token swap feature, which allow users to exchange cryptocurrencies, for instance from Bitcoin to Ethereum.
The MPI also allows license holders to perform regulated payment services such as account issuance, cross-border money transfers and merchant acquisition services.
Differences between CMS and MPI licenses
Below is a Comparison Table for Capital Markets Services (CMS) and Major Payment Institution (MPI) Licenses.
|Type of License||Regulated Activities||Services||Licensing Timeframe|
|Capital Markets Services (CMS) License||* Dealing in capital markets products|
* Advising on corporate finance
* Fund management
* Real estate investment trust management
* Product financing
* Providing credit rating services
* Providing custodial services for securities
|* Broker-dealers |
* Corporate finance advisers
* Credit rating agencies
* Real estate investment trust (REIT) managers
* Fund managers
* Securities-based crowdfunding (SCF) operators
|Major Payment Institution (MPI) License||* Providing Digital payment token (DPT) dealing and exchange activities |
* Providing digital asset transactions
* Providing custodial wallet services
* Facilitating the transfer of DPT
|* DPT service providers|
* Account issuance service providers
* Cross-border money transfer service providers
* Domestic money transfer service providers
* E-money issuance service providers
* Merchant acquisition service providers
* All other financial institutions providing DPT services
In view of the recent collapse of FTX exchange due to alleged fraud, the importance of regulating the crypto industry cannot be overemphasized.
Mainstream finance usually has clear functional separation between activities such as broking, trading, banking services and issuance, with each having its own set of rules and regulations. But the same cannot be said of the financial activities within the crypto industry in many parts of the world.
Singapore openly expresses its ambition to become a global crypto hub. The MAS emphasized that this hub is about “experimenting with programmable money, applying digital assets for use cases or tokenizing financial assets to increase efficiency and reduce risk in financial transaction.”
But at the same time, the city-state strongly discourages retail trading of cryptocurrencies, warning that cryptocurrencies are highly speculative and volatile. It has also banned crypto advertising in public areas and on social media.
Against the backdrop of international developments such as the newly formed Market in Crypto-Assets (MICA) regulation in the EU region, it is expected that token issuers and crypto exchanges licensed to carry out activities in Singapore may likely face greater regulations in the future.
The journey to becoming a licensed crypto service provider in Singapore can be a long one. We at Healy Consultants Group PLC will be happy to assist you during your business incorporation and licensing application process.
Email us to find out more: firstname.lastname@example.org