Jurisdiction - Singapore
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Singapore – MAS To Regulate Virtual Currency Intermediaries To Reduce Money Laundering And Terrorist Financing Risks.

3 April, 2014





The Monetary Authority of Singapore (“MAS”) has announced it intends to regulate virtual currency (“VC”) intermediaries (i.e. entities that buy, sell or facilitate the exchange of VCs for real currencies) in Singapore to address potential money laundering and terrorist financing risks. The decision to regulate VC intermediaries was made amidst the rising popularity of digital currencies in Singapore. This move will make Singapore one of the first countries in the world to regulate operators of Bitcoins, Litecoins and other virtual currencies.




Nature Of VCs


VCs are “non-physical stores of value that can be exchanged for goods and services at places that accept them”. Typically traded electronically, VCs may be used to purchase products at online stores, and may be transferred from one user to another. They are not denominated in fiat currency, such as the Singapore or US dollar.


VCs are not legal tender in Singapore. Neither are they considered securities under the Securities and Futures Act (“SFA”). Therefore, platforms that facilitate the trading of VCs are not regulated by MAS under the SFA. This means consumers and businesses that participate in VC schemes do not have the protection afforded under the regulatory framework administered by MAS.


Risks Associated With VC Transactions


There are significant risks associated with VC transactions. First, their values are dependent on market forces, and may therefore fluctuate unpredictably within a short span of time. Consumers and businesses may suffer considerable monetary losses brought about by the volatile prices. Second, VCs may not be issued and recorded by any identifiable organisation. Given their anonymous nature, VC transactions are particularly vulnerable to money laundering and terrorist financing risks. A typical example would be using ill gotten wealth to purchase VCs, and investing them again under the guise of seemingly legitimate business activities.


Regulation Of Virtual Currency Intermediaries


While MAS in the recent past merely cautioned consumers and businesses on the risks in dealing in VCs, it is now going one step further by issuing new rules to regulate VC intermediaries.


The proposed MAS regulation pertains specifically to the money laundering and terrorist financing risks that VCs pose. Through the proposed rules, MAS wants to make it mandatory for the VC intermediaries to verify the identities of their customers and report suspicious transactions to the Suspicious Transaction Reporting Office, Singapore’s Financial Intelligence Unit. The requirements will be similar to those imposed on money changers and remittance businesses who undertake cash transactions. If necessary, MAS will “consider additional measures” to address the risk posed by VC transactions.


The regulation does not extend to the safety and soundness of VC intermediaries nor the operation and proper functioning of VC transactions.


The proposed rules are expected to kick in within a year after a public consultation.



Although MAS’ intention to introduce a regulatory framework has generally been met positively by industry observers and participants, all eyes will be on the implementation details and the ensuing impact on the VC industry and landscape, as Singapore remains a forerunner in this regard.

Specifically, the new measures (e.g. requirement to verify customer identities) would increase the cost of business of VC operators, and it is unclear who will bear these costs. If the costs are passed on to the customers, this would reduce the current attractiveness of VCs as a medium of exchange with low transaction costs.

It is also unclear whether the regulations would apply to all transactions by VC intermediaries, or only to transactions that exceed a certain amount. For example, money changers today are required to perform relevant customer due diligence measures only for transaction amounts of SGD 5,000 and above. In this regard, Singapore’s inaugural national risk assessment (“NRA”) report issued in January 2014 highlighted that the anti-money laundering and terrorist financing controls are relatively less robust in sectors such as remittance agents, money changers and internet-based stored value facilities holders, and that the relevant government agencies would be strengthening the legislative and supervisory framework through the year to address the risks in these sectors more effectively. It is therefore possible that the rules will be tightened for money changers and remittance businesses, and correspondingly, VC operators.

Last but not least, it is important that the relevant regulators in Singapore – such as the MAS and the Inland Revenue Authority of Singapore (“IRAS”), which had earlier issued its guidance on the income tax and goods and services tax (“GST”) treatment of VCs like Bitcoin – apply a consistent treatment toward VCs and their operators/users.

Concluding Words

The introduction of a regulatory framework for VC intermediaries is a welcome move for Singapore as it maintains its position as a technology and financial hub in Southeast Asia. However, the regulation of the intermediaries to address money laundering and terrorist financing risks is just a first step. Industry players and consumers must continue to be vigilant about the risks that dealing in VCs entails. The relevant regulators must also consider the implementation details and impact of any regulations they plan to impose. The rules need to be flexible and adapt to fast-changing technology realities and the financial landscape in Singapore.


Rajah & Tann


For further information, please contact:


Rajesh Sreenivasan, Partner, Rajah & Tann
[email protected]

Steve Tan, Partner, Rajah & Tann
[email protected]


David Yeow, Partner, Rajah & Tann
[email protected]

Hamidul Haq, Partner, Rajah & Tan
[email protected]

Tanya Tang, Rajah & Tann
[email protected]

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