Improved regulation seen boosting Singapore crypto market

Digital Currencies Licence Singapore

Getting a licence to provide digital currency services in Singapore could take at least a year, but that isn’t slowing the number of financial institutions keen to apply.

In Singapore, a licence to operate digital currency services is provided under the Payment Services Act which came into effect last year. The law, which regulates payment systems and payment service providers, is designed to generate regulatory certainty and provide consumer safeguards while encouraging innovation and growth of payment services.

“A lot of clients who come to Singapore, I tell them if they want a payment services licence in Singapore, given the queue, it’s going to take at least a year,” said Grace Chong, counsel (Regulatory & ICT) for Singapore and Hong Kong at legal firm Simmons & Simmons.

“Some of these clients say yes, we’re willing to wait, we really want to get a licence in Singapore. If it’s going to take one or two years, we’ll apply anyway.”

Singapore-based Chong also noted that recent changes in regulations in Hong Kong and South Korea, which affected the types of services that providers could offer in those jurisdictions, had also boosted demand for licences in Singapore.

Risk weighting challenge

Speaking at a webinar on Crypto and Compliance organised by the LSE’s Refinitiv, Chong also said the number of traditional financial institutions venturing into the crypto world is increasing, and these institutions are getting more involved.

“I’m seeing a shift in the questions I’m getting. Increasingly it’s more about how banks can interact with crypto asset players,” Chong said.

“Instead of focusing on issues like how to do KYC (know your customer) checks on retail persons or how to check on politically-exposed persons, they are actually thinking of how they can risk categorise different types of crypto asset payment network operators.”

All financial institutions have dedicated risk management departments which monitor, manage, and measure the risks arising from their activities.  Managing digital assets adds a whole new layer of complexity for them to assess and reduce the possibility of loss.

Chong said she was seeing more questions about how banks risk categorise different types of principal-to-principal financial markets trading and settlement entities, how to manage relationships with the custodians of cryptocurrency, how to build in country risk into the due diligence analysis, and how this is reported to regulators.

Singapore is a jurisdiction widely seen as moving ahead quite rapidly in the area of regulating the cryptocurrency market. The Monetary Authority of Singapore (MAS) has published detailed regulations aimed largely at preventing money laundering and countering the financing of terrorism (AML/CFT).

As more and more jurisdictions implement AML/CFT and know your ultimate customer regulations along similar lines, the number of illicit transactions involving cryptocurrencies is falling sharply.

“Less than 0.5 per cent of crypto transactions are for illicit activity,” said Malcolm Wright, chief compliance officer at 100x Group.

“This is coming from ransomware and scams like get rich quick schemes,” he told the Refinitiv Webinar.