In the first half of 2024, Singapore’s cryptocurrency and blockchain sectors grew by 22%, reaching over US$200 million.
The MAS proposed a risk-based regulatory approach to enhance anti-money laundering and counter-financing of terrorism.
Singapore has consistently positioned itself as a forward-thinking jurisdiction, balancing innovation with robust regulatory oversight. As a fellow Singaporean, I am very proud of its future planning.
The Monetary Authority of Singapore (MAS) is seeking submissions for the Consultation Paper on the proposed regulatory approach for Digital Token Service Providers (DTSPs) under the Financial Services and Markets Act 2022.
Instead of replying to the submission directly, I will try to share my point of view openly here, offering insights, potential plans, and timelines for implementation. Before I start, I am sharing this in my personal capacity: I do not represent any self-claimed digital assets expert groups, associations, or schools.
License Application and Fee Structures
In the first half of 2024, Singapore’s fintech market saw its cryptocurrency and blockchain sectors achieve US$211.90 million across 72 deals, marking a 22% increase from US$166.30 million over 38 deals in the second half of 2023.
Singapore has been actively working on strengthening risk management frameworks for digital asset tokenization and has recently launched an initiative to expand asset tokenization within financial services.
The proposed license application processes and fee structures are crucial elements that will shape the DTSP landscape in Singapore. From my perspective, MAS should consider implementing a tiered approach to both timelines and fees, reflecting the diversity of DTSPs in terms of size, complexity, and risk profile.
For timelines, I propose a three-tier system:
Fast-track (60 days): For small, low-risk DTSPs with straightforward business models.
Standard (90 days): For medium-sized DTSPs or those with moderately complex operations.
Extended (120+ days): For large, complex DTSPs or those proposing novel business models.
This tiered approach would allow MAS to allocate resources efficiently while ensuring thorough vetting of more complex applications. The fee structures can follow a similar tiered system based on the DTSP’s annual revenue or transaction volume could be implemented.
Minimum Financial Requirements
The proposed minimum financial requirements are a critical safeguard against potential market disruptions and consumer losses. Based on my analysis, I believe a risk-based approach to setting these requirements is more feasible. This could involve:
Base Capital Requirement: A minimum base capital for all DTSPs, regardless of size or services offered.
Risk-Weighted Capital Requirement: Additional capital requirements based on the DTSP’s types of services offered, transaction volumes, and risk profile.
Liquidity Requirement: A minimum liquidity ratio to ensure DTSPs can meet short-term obligations.
Specifically, providers with capital ratios above 15% were 30% less likely to face operational disruptions during periods of extreme market stress. I propose that MAS consider setting the base capital requirement at SGD 250,000, with additional risk-weighted requirements that could increase this amount up to SGD 5 million for the largest and most complex DTSPs.
Audit Requirements
The proposed duties of CEOs, directors, and partners, along with audit requirements, are fundamental to ensuring good governance and accountability in the DTSP sector. The following enhancement is recommended for consideration:
Mandatory Training: Annual training programs for CEOs and directors on regulatory compliance, risk management, and emerging trends in digital assets.
Risk Committee: DTSPs above a certain size must establish a dedicated risk committee at the board level.
Independent Directors: Mandating a minimum number of independent directors based on the DTSP’s size and complexity.
Audit Frequency: Annual external audits for all DTSPs, with additional quarterly internal audits for larger providers.
Regulators are increasingly leveraging technological solutions to enhance their supervisory functions and manage vast amounts of data. Consequently, firms must engage more frequently with regulators regarding fintech and regtech developments.
Fintech companies that implement robust governance structures and conduct regular audits are indeed less likely to experience compliance breaches.
AML/CFT Measures
The measures proposed in parts 5–8 of the consultation paper, particularly those related to Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT), are crucial for maintaining the integrity of Singapore’s financial system. I propose the following enhancements:
Risk-Based Approach: Implement a tiered KYC/AML approach based on transaction volumes and risk profiles.
Technology Integration: Encourage the use of AI and machine learning for transaction monitoring and suspicious activity detection.
Regulatory Technology (RegTech) Sandbox: Establish a sandbox environment for DTSPs to test innovative compliance solutions.
For existing customers onboarded prior to licensing, I suggest a phased approach:
Phase 1 (0–6 months): Risk assessment of existing customer base
Phase 2 (6–12 months): Enhanced due diligence for high-risk customers
Phase 3 (12–18 months): Full compliance with new requirements for all customers
Correspondent Account Services
The proposed requirements for Correspondent Account Services and information sharing for law enforcement purposes are essential components of a comprehensive regulatory framework. Perhaps the following would help:
Standardized Data Format: Develop a standardized data format for information sharing across the industry.
Blockchain Analytics: Encourage the use of blockchain analytics tools to enhance transaction traceability.
Secure Information Sharing Platform: Establish a secure, centralized platform for information sharing between DTSPs and law enforcement agencies.
Blockchain analytics tools have been instrumental in recovering stolen or illicitly obtained digital assets worldwide. They allow law enforcement agencies to trace and identify suspicious cryptocurrency transactions on the blockchain, leading to asset recovery efforts.
Technology Risk Management
The draft notices FSM-N28 to FSM-N33 cover critical aspects of DTSP operations, including technology risk management, cyber hygiene, and conduct. Based on my observations, I propose the following:
Continuous Monitoring: Implement real-time monitoring systems for cyber threats and operational risks.
Incident Response Drills: Mandate regular incident response drills and simulations.
Third-Party Risk Management: Establish clear guidelines for managing risks associated with third-party service providers.
Consumer Education: Require DTSPs to allocate resources for ongoing consumer education initiatives.
Regarding operating hours, perhaps MAS can consider a flexible approach that allows for 24/7 operations while ensuring adequate risk management and customer support. This could involve:
Core operating hours (e.g., 9 AM to 5 PM SGT) with full support services
Extended hours with automated systems and on-call support
Scheduled maintenance windows during low-volume periods
Timeline for Implementation:
To ensure a smooth transition to the new regulatory framework, I propose the following timeline:
Month 0–3: Publication of final regulations and guidelines
Month 3–6: Industry consultation and feedback period
Month 6–9: Finalization of technical specifications and reporting formats
Month 9–12: DTSP preparation and system upgrades
Month 12–18: Phased implementation of new requirements
Month 18–24: Full compliance deadline for all DTSPs
This timeline allows for a gradual implementation, giving DTSPs sufficient time to adapt their systems and processes while ensuring that the regulatory framework is fully operational within two years.
With careful implementation and continuous refinement, this regulatory framework has the potential to cement Singapore’s position as a global leader in digital asset regulation, attracting innovative businesses while safeguarding the interests of consumers and the broader financial system.
Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.
Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.
An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.
India has been at the forefront of the global discussion on cryptocurrency regulations as it holds the G20 presidency this year and is a member of the Financial Action Task Force (FATF). The proposed regulations for cryptocurrency in India may have a broader impact on the Indian economy, with potential benefits such as increased investor confidence and boosted industry growth, positively impacting employment and economic development.
India has been cautious about cryptocurrencies in recent years due to concerns about their potential for illegal activities. While trading in cryptocurrency assets is not prohibited, India introduced a high tax rate last year, which significantly reduced such activity. Additionally, offsetting losses from one cryptocurrency asset with gains from another are now prohibited. The Indian government has also discussed the possibility of stricter regulations for cryptocurrencies but has not taken any concrete steps.
India has emphasized the need for international cooperation in addressing the risks of cryptocurrencies, including sharing information and best practices among countries, during G20 and FATF meetings. India supports the FATF’s efforts to develop global standards for regulating cryptocurrencies and is committed to working with other countries to ensure the effective implementation of these standards.
Understanding The Motive Behind India’s Proposed Uniform Cryptocurrency Regulations
The proposed uniform regulations for cryptocurrency in India aim to establish a clear and consistent framework for managing and using cryptocurrencies. These regulations address various risks associated with cryptocurrencies, including financial stability, consumer protection, and illicit activities. The overall objective is to promote the responsible and transparent use of cryptocurrencies while supporting the development of the cryptocurrency industry in India. They are meant to bring the use of cryptocurrencies into line with the larger goals of the Indian economy and reduce the risks that come with them. The Indian government wants to make the cryptocurrency market fair for everyone and encourage people to use cryptocurrencies in a smart way.
In addition to mitigating the risks of cryptocurrencies, the proposed rules support innovation and growth in the industry. By providing a clear and stable regulatory environment, the Indian government aims to attract investment, encourage innovation, and promote industry growth, thus contributing to the overall development of the Indian economy.
Unpacking The Key Features Of India’s Proposed Cryptocurrency Regulations
The proposal for cryptocurrency in India is expected to contain several key features. Firstly, they may include provisions related to the licensing and registration of cryptocurrency exchanges, ensuring their compliance with certain regulatory requirements. Additionally, the regulations may mandate the reporting of suspicious transactions and implementation of anti-money laundering and countering the financing of terrorism (AML/CFT) measures to prevent illegal activities.
Consumer protection and data privacy provisions may also be included, along with requirements for maintaining records and reporting to regulatory authorities. The regulations are also likely to outline the responsibilities of various stakeholders in the cryptocurrency ecosystem, such as exchanges, wallet providers, and users, setting standards for their operation and conduct.
Moreover, the proposed regulations may specify the types of cryptocurrencies that can be traded or held by individuals or businesses, establishing rules for their safe storage and transfer. They may also address issues related to taxation, including the tax implications of holding, buying, and selling cryptocurrencies and the tax treatment of income generated from cryptocurrency-related activities.
What Impact Will India’s Proposed Cryptocurrency Regulations Have On The Industry?
Currently, the status of cryptocurrency regulations in India is somewhat uncertain. While the Indian government has expressed concerns about the potential risks posed by cryptocurrencies, it has not yet taken any concrete steps to regulate the industry. The Reserve Bank of India (RBI) has issued several warnings about using cryptocurrencies but has not yet implemented any specific regulations.
The introduction of these regulations may have a significant impact on the cryptocurrency industry in India. The regulations may create a more favourable environment for the industry’s growth by providing a clear and consistent framework for using cryptocurrencies. However, the regulations may impose additional costs and compliance requirements on cryptocurrency exchanges, which may impact their profitability. Additionally, the regulations may affect consumer behaviour, as they may increase consumer confidence in the safety and security of cryptocurrencies.
In recent years, there has been growing interest in cryptocurrencies in India, and many cryptocurrency exchanges have emerged to meet this demand. However, without clear and consistent regulations in place, the use and management of cryptocurrencies in India remain largely unregulated.
The Potential Impact Of Proposed Cryptocurrency Regulations On The Indian Economy
The introduction of the proposed laws for cryptocurrencies in India may have significant economic implications beyond the cryptocurrency industry itself. If the regulations successfully address the risks associated with cryptocurrencies, they may increase investor confidence and attract more investment into the industry. This could lead to the creation of more job opportunities and promote economic development in the country.
On the other hand, if the rules are too strict or hard to follow, they could slow down the growth of the cryptocurrency industry and make it less likely that it will help the economy. This could also discourage innovation and investment in related fields, such as blockchain technology, which could limit the growth potential of these industries. Moreover, if the regulations establish clear guidelines for taxation and provide a framework for the reporting of cryptocurrency-related transactions, they could contribute to the growth of government revenue. This could be especially important in light of the economic impact of the COVID-19 pandemic, which has put a strain on government finances in India.
The proposed rules for cryptocurrencies in India have the potential to impact the wider economy in various ways, depending on their effectiveness and how they are implemented. While they may contribute to increased investor confidence and economic growth, it is essential to strike a balance between regulation and innovation to ensure the sustainable development of the cryptocurrency industry and the broader economy.
The Road To Uniform Crypto Regulations In India: Are We Ready?
By introducing uniform regulations, the Indian government hopes to ensure that cryptocurrencies are used safely and securely while also protecting investors’ interests. From my point of view, the need for uniformity in regulating cryptocurrencies among G20 countries is a matter of debate. On the one hand, uniform regulations can help ensure a level playing field for businesses and prevent regulatory arbitrage, where companies flock to more lenient laws. This can also help reduce the potential for cross-border risks to the financial system.
On the other hand, each country has unique economic, political, and cultural contexts and may have different needs and priorities regarding regulating cryptocurrencies. For example, some countries may place a higher emphasis on consumer protection, while others may focus more on anti-money laundering and countering the financing of terrorism.
Ultimately, the ideal approach to regulating cryptocurrencies is likely to be a balance between these two perspectives, where countries adopt a standard set of principles while still retaining the flexibility to tailor regulations to their specific circumstances. This approach can help ensure that cryptocurrencies are regulated in a way that promotes innovation, protects consumers, and reduces potential risks to the financial system while respecting individual countries’ sovereignty.
I think it is too early to have uniform regulations across G20 countries on cryptocurrency. They did not perfect it in traditional finance; it will be a lot harder for cryptocurrency. Regulations should be localised if they want to move fast to catch up with the speed of changes in the cryptocurrency space.
The proposal for uniform regulation of cryptocurrencies among G20 countries could potentially delay regulation in individual countries, including India. As an intergovernmental advisor on blockchain and cryptocurrency matters, I propose that the Indian government do the same. Rather than have uniform regulations across the entire country, it should be localised. This method can have a number of benefits, such as making it easier to create a regulatory framework that can adapt quickly to changes in the market and the needs of the industry. Localised regulations can also account for the specific needs and circumstances of different regions and jurisdictions and allow for the development of regulations tailored to the local context and priorities. This can be especially important in a country as diverse and complex as India, where there may be significant regional variations in the needs and challenges faced by the cryptocurrency industry.
Wrapping Up
Recent events in the crypto market have highlighted the need for some form of regulation in the industry, given the potential risks associated with cryptocurrencies, such as price volatility, lack of investor protection, and possible for illegal activities. The proposed uniform regulations in India aim to provide a clear and consistent framework for using and managing cryptocurrencies while promoting the industry’s growth and innovation. While the impact of these regulations on the wider Indian economy remains to be seen, their successful implementation could increase investor confidence and boost economic development.
Despite the challenges, India has been actively engaged in discussions on the issue of cryptocurrencies and their potential risks, particularly concerning money laundering and terrorist financing. The outgoing Secretary General of the Financial Stability Board, Dietrich Domanski, has advocated for global regulations for decentralized finance, highlighting the possibility of managing risks in the crypto sector. It is clear that the regulatory landscape for cryptocurrencies is constantly evolving, with new challenges and opportunities arising. India, as a key player in the G20 and FATF, has an important role to play in shaping the global regulatory framework for cryptocurrencies. While uniform regulations may not be feasible in the near term, continued discussions and cooperation among countries can help pave the way for a more harmonized approach in the future.
In conclusion, while the debate over uniform regulations for cryptocurrencies continues, it is clear that India is playing an active role in shaping the global regulatory framework. As the industry continues to evolve, it is vital for all stakeholders to work together to ensure that the benefits of cryptocurrencies can be harnessed while minimizing the risks associated with them.
The timeline for introducing these regulations has not been officially announced yet, but it is expected to be presented soon following the G20 conference this month. Hopefully, concrete and reasonable regulations will emerge from this meeting, but only time will tell.
Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.
Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.
An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.
