Singapore’s Crackdown on Unlicensed Cryptocurrency Firms
Singapore has initiated a significant crackdown on unlicensed cryptocurrency firms by enforcing a new directive that prohibits them from providing services to customers outside the country. This order, issued by the Monetary Authority of Singapore (MAS) on May 30, is an effort to close existing regulatory gaps within the blockchain sector. As a result, operators that wish to serve overseas clients must obtain the necessary licensing or cease operations altogether.
Shifting Regulatory Landscape
While some may perceive this move as a shift away from Singapore’s previously welcoming approach towards cryptocurrencies, it actually reflects the city-state’s consistent push for stricter regulatory compliance. This action is part of a broader global trend targeting money laundering and the financing of terrorism. Joshua Chu, a lawyer from Hong Kong and co-chair of the local Web3 association, highlighted that exchanges attempting to skirt licensing requirements, often by exploiting loopholes, will soon find themselves at a crossroads.
“Those firms planning to bypass regulations should brace for relocation to places that offer no real alternatives, akin to ‘the moon,'” he remarked.
Historical Context and Current Compliance
Historically, Singapore has been an attractive environment for crypto firms thanks to its Payment Services Act (PSA), which permits firms to operate without a license as long as they do not cater to local customers. Given the country’s limited population of six million, many companies ignored local regulations by targeting foreign markets. YK Pek, the CEO of legal tech company GVRN, noted that while the MAS’s recent enforcement appears abrupt, the authority has been transparent about its position since a public consultation in February 2022.
The 2022 Financial Services and Markets Act (FSMA), which mandates licensing for businesses providing digital token services to overseas clients, has not undergone any changes; rather, MAS is ensuring compliance with its guidelines. Patrick Tan, general counsel at ChainArgos, explained:
“Singapore’s identity as a major financial hub rather than exclusively a crypto-friendly zone must be acknowledged. Given the global tightening of crypto regulations, businesses must critically assess their licensing pursuits.”
Global Trends and Jurisdictional Competition
As these firms reconsider their options, speculation is mounting regarding alternative jurisdictions that may appear more appealing amidst changing regulations. For instance, the Philippines now requires licensed crypto firms to maintain a physical presence in the country, while Thailand has taken steps to close multiple exchanges due to licensing issues and money laundering allegations, granting a deadline for investors to divest their assets by June 28.
As contenders for crypto hubs, Hong Kong and Singapore are often compared. Following Thailand’s recent restrictions, exchanges like Bybit are exploring licensing opportunities in Hong Kong, where they had been blocked from operating. Notably, the previous month saw Bybit seeking a compliance counsel for its Hong Kong operations and confirming discussions with regulators in that region. However, Hong Kong has its own challenges, as it has issued only ten crypto licenses compared to Singapore’s thirty-three under the PSA.
Future Regulatory Outlook
Moving forward, experts anticipate that other significant crypto jurisdictions, including Hong Kong, the European Union with its MiCA framework, the UK, South Korea, and Japan, will similarly enhance their regulations in alignment with Financial Action Task Force (FATF) standards. Singapore plays a crucial role among the forty FATF member countries committed to improving compliance with the Travel Rule and Anti-Money Laundering (AML) protocols.
The FATF’s increased scrutiny, following its plenary discussions in February, has prompted stricter AML compliance measures globally, demonstrated by recent regulatory updates in Dubai aimed at maintaining its status free from the FATF gray list. Legal experts urge caution for firms that may misinterpret the friendly regulations in Dubai, as the jurisdiction is still under scrutiny.
Thus, the landscape for crypto firms seeking regulatory havens has begun to dwindle, reinforcing an era where compliance is increasingly mandatory for continued operations. The allure of evading regulations through jurisdictional maneuvers is fading, leaving even the most accommodating locales insisting on adherence to established rules.
