Singapore Becomes a "Safe Haven" for Cryptocurrency: The First Batch of Trading Platforms Has Received "In-Principle Approval"

Author: Hu Tianjiao

Several years ago, central banks around the world began to "frown" upon cryptocurrencies, including Bitcoin, but did not take significant action. However, recently, cryptocurrencies may face a "winter."

The crackdown on the entire cryptocurrency ecosystem has extended to cryptocurrency trading platforms. Binance Pay has been largely restricted in the UK, with regulations spreading from London to Brussels, Hong Kong, and penetrating as far as Kuala Lumpur. The two major political parties in the United States, which often disagree on various issues, have found common ground on the cryptocurrency issue, with states like New Jersey recently targeting the cryptocurrency platform BlockFi, accusing it of offering unregistered securities and demanding an immediate halt to the product.

Firm supporters, fast-profit traders, and cryptocurrency stakeholders are beginning to turn their attention to the more lenient—Singapore. Binance, Ethereum, Gemini, and others are here.

Faced with the "immigration" of cryptocurrencies, Singapore, which prides itself on a "financial openness" attitude, finds itself in a dilemma: allowing their development would contradict the attitudes of major countries like the US, Europe, and China, potentially facing global pressure in the future; but if it joins the latter's camp, it may miss out on fintech opportunities.

The first batch of trading platforms has received "in-principle approval" and is in the process.

Singapore seems to have made a choice, or at least is testing the waters.

On August 2 local time, Australian cryptocurrency exchange Independent Reserve announced that it had received "in-principle approval" from the Monetary Authority of Singapore (MAS) under the Payment Services Act (PSA), allowing it to become a regulated Digital Payment Token (DPT) service provider.

According to Independent Reserve's statement, the company is not the only institution to receive an approved license. "As one of the first cryptocurrency exchanges to receive MAS's in-principle approval, this reflects our good daily operational policies, procedures, and risk control systems. It also provides certainty for industry participants and safety for customers."

Several cryptocurrency trading platforms told reporters from the 21st Century Business Herald that Singapore's attitude has generally been friendly on a global scale.

Wang Haifeng, a senior researcher at OKLink Research Institute, told reporters that Independent Reserve, as one of the first platforms to receive "in-principle approval," demonstrates and confirms Singapore's consistently positive and friendly regulatory attitude towards the relevant field. "In fact, Singapore expanded its regulatory framework as early as November 2018 and implemented a mandatory licensing system. In the long run, this is beneficial for relevant companies to carry out innovative services within compliance. Especially in the context of tightening global regulations, it makes Singapore a hotbed for blockchain innovation and development."

Previously, Singapore's Senior Minister and MAS Chairman Tharman Shanmugaratnam stated at a meeting on July 26 that several applicant institutions are entering the final verification stage to obtain licenses as digital payment token service providers.

"Since the Payment Services Act came into effect in January 2020, about 170 digital token trading platforms have applied for digital payment service licenses." He added, "After further contact with MAS, 30 applications were withdrawn, and 2 applications were rejected. Currently, about 90 service providers continue to operate under exemption from licensing."

The Payment Services Act officially came into effect in January 2020, requiring all DPT service providers operating in Singapore, including cryptocurrency exchanges, to register and obtain licenses. The new Payment Services Act expanded MAS's regulatory scope to include new payment services such as digital payment token services, screening their customer protection mechanisms, transaction and compliance structures, etc., to ensure that payment companies meet anti-money laundering (AML) and counter-terrorism financing (CFT) requirements.

In this regard, Independent Reserve stated that to obtain a license, virtual asset service providers must implement controls to ensure appropriate due diligence and adequate risk disclosure.

The Payment Services Act clearly defines the licensing of digital tokens for the first time. Depending on the nature and scope of services, payment service providers need to apply for "money-changing" licenses, "standard payment institution" licenses, and major payment institution licenses according to their circumstances. According to the Act, the eligibility requirement for license applications is that at least one of the company's directors must be a Singaporean or a permanent resident residing in Singapore. This means that it is much easier for cryptocurrency exchanges to establish services in Singapore.

However, so far, MAS has not approved any cryptocurrency licenses, and DPT service providers have been operating under the PSA exemption from holding licenses. Currently, entities and companies with exemption licenses include Huobi, OKCoin, Bitstamp, Coinbase, Ripple, and BitGo.

"In-principle approval is essentially formal approval." A person related to a cryptocurrency platform told reporters, "It just awaits the completion of the process and procedures."

Singapore swims against the tide; financial risks cannot be underestimated.

Your honey is another's poison. Singapore has gradually absorbed some of the benefits from another Asian financial center—Hong Kong. Although the pandemic has put significant pressure on most economies, the impact on Singapore's absorption of financial factors has been minimal.

While the attitude towards cryptocurrencies has always been friendly, MAS also faces a dilemma. Cryptocurrencies may represent a technological blue ocean and an opportunity for further financial development in Singapore. Resource-scarce Singapore relies on tourism and fintech as its two key pillars for attracting capital. Now, with cryptocurrency platforms flooding in, the speed and scale may expand. Ignoring the potential of the cryptocurrency industry in attracting capital, technology, and talent may cause Singapore to miss opportunities.

However, another realistic issue is that if Singaporean authorities swim against the tide and insist on creating a relatively friendly regulatory environment, it would not only contradict the attitudes of Hong Kong, mainland China, and other major countries, but the potential illegal activities and financial stability risks brought by cryptocurrencies cannot be underestimated.

Regarding the globally scrutinized "Binance," MAS only stated that it would follow up accordingly. "We will follow up on Binance Holdings Limited's subsidiary in Singapore as required. We are aware of the actions taken by other regulatory agencies against Binance and will take appropriate follow-up actions," MAS stated.

Binance CEO Zhao Changpeng has moved the platform to Singapore to temporarily avoid a series of regulations, while simultaneously posting job openings on LinkedIn. According to the Financial Times, Ethereum founder Vitalik Buterin is also here.

In June this year, US cryptocurrency exchange Gemini chose Singapore as its Asian headquarters, appointing Jeremy Ng as the head of the Asia-Pacific region, based in Singapore. Gemini stated that it would apply for a license from MAS under Singapore's 2019 Payment Services Act as part of its global expansion strategy.

"Singapore is a major financial center in Asia, with a large customer base, especially in the private wealth sector. We have had discussions with many wealth management companies, and everyone needs a cryptocurrency solution," Jeremy Ng said. "Retail and institutional clients in the Asia-Pacific region can buy, sell, store, and earn over 40 cryptocurrencies, with support for fiat currency exchanges in SGD, AUD, and HKD." Currently, Gemini is working with SingPass to simplify the process for Singapore residents to open accounts with Gemini while ensuring security and compliance.

In addition to becoming a safe haven for platforms, MAS's friendly attitude is also reflected in its previous statement to provide assistance to cryptocurrency investors who suffer losses, which is noticeably more responsible than in the Eurozone.

"Cryptocurrencies like Bitcoin have no value support at all, and investors face the risk of significant or even total loss of funds." This is the preferred rhetoric of the European Central Bank (ECB). It may imply that once cryptocurrency investors' interests are harmed, central banks are unlikely to provide corresponding support.

On May 10 local time, MAS Chairman Tharman Shanmugaratnam, when asked about measures to limit retail investors' exposure to cryptocurrency trading and investment, stated that MAS has repeatedly warned that investing in cryptocurrencies is risky and unsuitable for retail investors. "Most cryptocurrency prices are influenced by speculative fluctuations." He added that individuals who incur investment or financial losses may be directed to Singapore credit counseling companies, which will work with them to understand their financial situation and assist them in reaching appropriate debt repayment arrangements with creditors.

"In my view, Singapore's attitude has always been inclusive and firm," said a cryptocurrency analyst. "But it inevitably faces a series of external pressures."

On June 28 local time, MAS President Ravi Menon delivered a speech on "Decentralized Finance and the Future of Money." He stated that technology is enabling a completely different way of financial infrastructure compared to the current centralized system. Decentralized financial infrastructure and open cryptocurrency networks can potentially enhance inclusivity and innovation. When companies of various sizes, even individuals, can directly access financial infrastructure, more competition and inclusivity can emerge.

Central bank-backed digital currencies (CBDCs) were mentioned twice in this speech, and the above content can be seen as an official statement on digital currencies/virtual currencies.

"The key question about the future of money is: what is the appropriate division of labor between the public and private sectors?" Ravi Menon said. "One extreme is a completely centralized system, where only central bank money exists; the other extreme is a decentralized system, where only private money circulates." In his view, each country must choose a different position within this unity, given its cultural norms, social contracts, and institutional structures.

"Stefan Ingves (Governor of the Swedish Central Bank) once told me that, in the end, this is not even a monetary issue. The future of money is too important to be decided solely by central banks." He added.

Even though MAS has opened a convenience for the first batch of license applicants, cryptocurrency traders still cannot help but worry whether MAS will be generous with licenses and whether the lenient regulatory environment will continue.

"We hope that the government and regulatory agencies will clarify what digital asset service providers can and cannot do, as clear and bounded regulation is a good start and a catalyst for development," said a head of a cryptocurrency trading platform.