Singapore's Commercial Affairs Department (CAD) and the Monetary Authority of Singapore (MAS) have jointly issued an advisory reminding consumers to be mindful of the potential risks of digital tokens and virtual currency-related investment schemes.
For instance, consumers should understand that they are higher risk of fraud when investing in schemes that operate online or outside Singapore. Since these operators do not have a presence in Singapore, it would be difficult to verify their authenticity and challenging to trace the scheme's operators if the scheme collapses. The recovery of invested monies may also be subject to foreign laws or regulations, which may not be the same as Singapore's.
Consumers should also consider the credibility of sellers, if there will be sufficient secondary market liquidity, and if the funds are misused for illegal activities such as money laundering before committing to digital tokens or related schemes, advised MAS.
The advisory was issued after MAS recently announced that it will regulate the offer or issue of digital tokens in Singapore if the digital tokens constitute products regulated under the Securities and Futures Act (Cap289) (SFA).
A digital token is a cryptographically-secured representation of a token-holder's rights to receive a benefit or to perform specified functions. This means that besides being just a virtual currency, digital tokens may be used to represent ownership or a security interest over the token seller's assets or property, or a debt owed by the seller.
Since these other functions fall under the SFA, issuers of such tokens would be required to lodge and register a prospectus with MAS before offering such tokens, unless exempted.
Issuers or intermediaries of such tokens would also be subject to licensing requirements under the SFA and Financial Advisers Act (Cap. 110), unless exempted, and the applicable requirements on anti-money laundering and countering the financing of terrorism.
Moreover, platforms facilitating secondary trading of such tokens would also have to be approved or recognised by MAS as an approved exchange or recognised market operator respectively under the SFA.
According to MAS, this move aims to counter digital tokens' vulnerability to money laundering and terrorist financing risks due to the anonymous nature of the transactions, and the ease with which large sums of monies may be raised in a short period of time.
Since the types of digital tokens offered in Singapore and elsewhere vary widely, MAS advises all issuers of digital tokens, intermediaries facilitating or advising on an offer of digital tokens, and platforms facilitating trading in digital tokens to seek independent legal advice to ensure they comply with all applicable laws, and consult MAS where appropriate.