Written by Takatoshi Shibayama, Head of Sales APAC – Copper, on 25 November 2021. First published in Digital Bytes, 5 January 2022.

With the digital asset market currently valued in the region of $2.5 trillion, it’s no surprise that regulators from all over the world are looking to create a clear roadmap for investors to securely engage with this rapidly growing industry.

Leading the way is Singapore, whose digital asset regulations require crypto payment service providers to be licensed by the MAS.

As financial centres around the world grapple with the rising popularity of digital assets, Singapore continues to cement its position as a forward-looking global crypto hub – competing with the likes of Switzerland and Malta. Over the past three years, the Monetary Authority of Singapore (MAS) has been putting in place stringent regulation to help institutional investors and the retail market mitigate the multitude of risks associated with digital assets.

“Singapore currently has some of the toughest and most rigorous requirements of any jurisdiction in Asia for the licensing of digital asset businesses.” Takatoshi Shibayama, Head of Sales APAC at Copper, said. "Following China’s ban on cryptocurrencies, proposed obstacles to crypto trading in India, continued confusion in South Korea and Hong Kong facing criticism for limiting digital asset trading to professional investors – Singapore is eager to pave the way in Asia for a clear crypto regulatory framework that delivers on the trust quotient.”

Since January 2020, digital asset firms have been able to apply for operating licences under the Payment Services Act – a law that regulates companies handling the buying, selling, holding or transferring of cryptoassets. Many of the world’s biggest crypto exchanges, including Gemini, Coinbase and Crypto.com, have all applied for licences to operate.

One of the latest digital asset firms to announce plans of obtaining a license and establishing a presence in Singapore is Circle, the issuer of the second-largest stablecoin, USDC. While they wait for their licence, many firms have been granted exemptions, meaning they can serve retail and institutional investors.

However, the MAS’ tough regulatory requirements has also led to leading players quitting the race.

Just weeks after a Chinese state crackdown on digital assets forced Huobi to stop its China operations, the exchange then announced the suspension of its services in Singapore, in lieu of increasing regulatory oversight. Meanwhile Binance, the world’s largest exchange by trading volume, was recently shown the red card by the MAS. In September 2021, the regulator ordered the exchange to cease providing payment services, forcing Singaporeans to withdraw their funds to store in MAS-approved crypto exchanges.

Just a week after Binance was shown the door, DBS Vickers – the brokerage arm of DBS Bank – secured a licence to offer digital payment token services. Australian crypto exchange, Independent Reserve, which describes itself as a ‘pro-regulation exchange’, followed suit in obtaining a MAS license (becoming the world’s first foreign crypto exchange to do so).

Most recently (sometime in mid November 2021), Singapore-based crypto exchange Coinhako, became the first local non-bank crypto exchange to announce that it had received an in-principal approval from MAS.

MAS Managing Director, Ravi Menon, recently said in an interview: “We don’t need 160 of them to set up shop here. Half of them can do so, but with very high standards, that I think is a better outcome.”

Copper’s Takatoshi believes that the coveted MAS license, which calls for digital assets to become subject to some of the toughest rules, is what sets this small island nation apart from other crypto-friendly jurisdictions.“It’s thought that about 20% of the 170 applications have been withdrawn or rejected by the MAS for not making the grade on money laundering controls, terrorism financing or technology risks.”

He said. “The clear priority is to keep both companies and users safe. I can certainly see the Singapore regulator’s approach to digital assets acting as a cookie-cutter model for other jurisdictions in Asia and Europe.”

He adds that the wider government is actively trying to understand decentralised technology, remarking that the appetite and interest for crypto in Singapore has even extended to the country’s sovereign wealth funds.

“Throughout the past year, both GIC and Temasek have been at the forefront of institutional allocations to blockchain and crypto technologies. Temasek is a backer of both FTX and Binance, while GIC earlier in 2021 invested in the parent company of crypto exchange OSL.”

“The future for digital asset regulation is still taking shape, and Singapore is one of the few jurisdictions setting clear rules and regulations of this complex sector. However as the fast-growing crypto industry evolves, regulators will need to work extra hard to keep pace. I definitely believe that Singapore is well-positioned to lead the world in enhancing investor confidence in digital assets, and look forward to the nation continuing to galvanise its global fintech hub status at the same time.” Takatoshi concluded.

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