The Parliament of Singapore had passed the Financial Services and Markets (FSM) Bill (the “Bill”) which will expand the powers of the Monetary Authority of Singapore (MAS) and address regulatory weaknesses in the digital asset space. This marks the latest development in Singapore’s measures to become a global crypto hub while setting out stringent regulations to address previous legislative gaps.
Key components of the Bill include an enhancement of powers allowing MAS to regulate crypto firms – both through a stronger enforcement framework and also the consolidation of its existing powers. The Bill main focus is on ensuring MAS can “address regulatory challenges presented by the digitalization and transformation of the financial market.”
In January 2022, MAS issued guidelines to discourage cryptocurrency trading by the general public, advising digital token (DT) service providers not to promote their services to Singaporeans through marketing or advertising.
“MAS has observed that some DT service providers have been actively promoting their services through online and physical advertisements or through the provision of physical automated teller machines (ATM) in public areas. This could encourage consumers to trade DPTs on impulse, without fully understanding the […] risks…” it warned.
The Bill is also meant to address the gaps in existing legal and regulatory infrastructure, with Minister Alvin tan stating, “Digital token service providers could easily structure their businesses to evade regulation in any one jurisdiction, as they operate mainly online”. The Bill is meant to mitigate the risks Singapore could be exposing itself to where DT service providers set up in Singapore whilst providing services relating to virtual assets extraterritorially.
There are four specific pillars to the FSM Bill:
- Harmonized and expanded prohibition orders (PO) powers
MAS will be given broader powers to issue prohibition orders “against persons who have shown themselves to be unfit to perform key roles, activities, and functions in the financial industry.”
Current loopholes mean MAS can only stop individuals carrying out key regulated activities, and not someone providing payment, risk management, or compliance services. The FSM Bill broadens these categories and widens the scope to cover functions critical to the integrity and functioning of FIs, in alignment with similar PO powers in Australia, Hong Kong, the UK, and the US.
- Enhanced regulation of DT service providers for ML/TF risks
While Singapore has already strengthened its standards for DT service providers in line with FATF recommendations, this closes a loophole that allows DT providers which are created in Singapore but not operating in the city-state to operate unregulated for anti-money laundering and combating the financing of terrorism (AML/CFT).
DT service providers will now be regulated “as a new class of FIs” with the bill introducing licensing requirements and powers to conduct AML/CFT inspections. MAS says AML/CFT requirements will align with those imposed on digital payment token service providers under the Payment Services Act.
- Harmonized technology risk management (TRM) requirements
The Bill consolidates existing TRM requirements, enabling MAS to impose them on any FI or class of FI. Current maximum penalties for breaching TRM requirements “are not commensurate with the potential widespread impact to FIs’ customers and the financial industry that could result from such breaches.”
Penalties will now be increased up to $1m per breach, it will be higher for a serious cyber-attack or disruption to an essential financial service. MAS will also be able to make FIs set aside additional regulatory capital until it is satisfied that adequate TRM measures have been put in place.