The Monetary Authority of Singapore (MAS) is consulting on two sets of proposed changes to its Payment Services Act 2019 (PS Act), relating to its e-money and digital payment token (DPT) regulatory regimes. The first relates to the scope of e-money and DPT, while the second focusses on the DPT regime primarily from an anti-money laundering and counter-terrorist financing (AML/CTF) perspective. The PS Act only came into force on 28 January 2020. (The consultations can be found here and here.)
Scope of emoney and DPT
In this consultation, the MAS poses a number of conceptual questions such as:
- Does it matter whether e-money is pegged to only one currency or more than one currency; if not, why not?
- Is a claim on the issuer a necessary defining characteristic of e-money?
- If “stablecoins” – cryptocurrencies designed to offer price stability and backed by a reserve asset – fulfil the functions of money, then should holders of stablecoins be afforded the same regulatory protections as holders of e-money? Should regulations be introduced to maintain the stability of the value of stablecoins?
These questions are prompted by market developments, including the emergence of stablecoins that are linked to baskets of currencies; crypto assets which are not “issued” by anyone, but created through a distributed ledger technology; and the use of stablecoins as a means of payment.
DPT is a concept unique to Singapore and the regulatory regime surrounding it sits alongside that for a more traditional concept of e-money, derived from and very similar to the UK/European concept. It seeks to capture crypto assets like bitcoin and ether – the “classic” virtual currencies. In defining a DPT, Singapore sought to create a mutually exclusive regime from e-money. The definition of DPT specifically does not include where the token is pegged to a currency, nor any claim against an issuer. Instead, it includes a condition that the token “is, or is intended to be, a medium of exchange accepted by the public, or a section of the public, as a payment for goods and services or for the discharge of a debt”.
DPT regime extension: the AML/CTF perspective
In the second consultation, the MAS asks a series of questions about the boundary of regulation, primarily from an AML/CTF perspective, and against the backdrop of FATF initiatives in this field:
- Should services for the acceptance of DPTs from one address for the transfer (or arrangement of transfer) to another address be caught?
- Should “arranging” for the transfer of DPTs be caught?
- Should the services of “safeguarding” or “administration” of DPTs be caught, where the service provider has “control” over the DPT?
- How should “active facilitation” be interpreted? MAS refers to any service of “inducing or attempting to induce any person to [buy a DPT] or with a view to … buying [a DPT]”?
In the same consultation, but unrelated to these DPT-related questions, the MAS asks if “broking” money remittance (i.e. “arranging” for the transmission of money) should fall within the regulatory regime?
Observations from the UK
It is encouraging to see a regulator proactively reviewing the “fitness for purpose” of its regulatory regime, especially so early in its application and in reaction to market developments. That said, setting the boundary and resolving perimeter issues are among the most difficult regulatory challenges.
The MAS is feeling its way forward to ensure digital assets do not fall between the cracks of its two regulatory regimes, e-money and DPT, but one ca not help thinking that being overly focussed on specific legal conditions may detract from a more holistic and outcomes-based approach, which is focussed on the regulatory objectives of customer (consumer) protection. From our various interactions with the Financial Conduct Authority (FCA), we are aware that it is very concerned about customers, primarily consumers, being confused about what products do and do not benefit from the various consumer/investor protections. The FCA’s unease is centred on the crypto space, where firms offer both unregulated and regulated products alongside each other (such as a crypto exchange and peer-to-peer (P2P) networks or e-money). This outcome-focussed approach seeks to identify the various risks associated with different digital assets and money and to apply regulatory protections.
Moving from products to activities, the MAS is borrowing concepts traditionally used in the securities world – such as “arranging”, “administration”, “broking” and “inducing” – to help define the boundary of regulation for digital assets and money. These concepts are difficult enough to apply to securities, but their re-use requires careful consideration to ensure the boundary is not set too broad, given the different ecosystems, structures and technology used for digital assets. Even concepts like “possession” and “control” are not straightforward in this context.
Lastly, the MAS is seeking to grapple with the omnipresent issue of jurisdictional reach: digital assets do not respect geographical boundaries. Regulators are left applying their national regimes, based on the location of the service provider or of the user, with the nature of the activity itself becoming less important. Hence its reach to providers who are located in Singapore but service customers based outside of the city-state; even though this may cause difficulties in territorial reach and potential conflicts with the laws where the user is located.
It is fascinating stuff grappling with such core regulatory questions with no one right answer – and too many wrong ones that could stifle innovation – but it’s great to be having the open dialogue with a highly respected regulator.