Following on from its press release in early August 2017 which dealt with the regulatory position on the offer of digital tokens in Singapore, the Monetary Authority (MAS) has now published general guidance on the application of the securities laws administered by it in relation to offers or issues of digital tokens in Singapore (the Guide).[1]  Although the Guide is expressly non-binding and non-exhaustive, it does provide some welcome reassurance and clarity for existing and potential issuers of digital tokens in Singapore.

The Guide makes clear that offers or issues of digital tokens may be regulated by MAS if they constitute ‘capital markets products’ under the Securities and Futures Act (SFA).  Such products include securities, futures contracts and contracts or arrangements for purposes of leveraged foreign exchange trading.  MAS has also clarified that it will look to the substance, structure and characteristics of a digital token when considering if it is a type of capital markets product under the SFA.

MAS has stated that offers of digital tokens which amount to offers of securities or units in a collective investment scheme (CIS) are subject to the usual prospectus regime requirements as set out in the SFA, unless a specific exemption applies; such as the small offer exemption (broadly, raising no more than S$5 million within any 12-month period), private placement exemption (offers to no more than 50 persons within any 12-month period) or the exemption for offers to institutional or accredited/high net worth investors.

The Guide also mentions related scenarios involving intermediaries and specifies when such intermediaries may require capital markets services licences or other approvals to operate.  Examples include: intermediaries who operate primary platforms for offering or issuing digital tokens in Singapore which constitute capital markets products; intermediaries providing financial advice in Singapore in respect of digital tokens which are considered investment products; and intermediaries who establish or operate trading platforms in Singapore for digital tokens which are securities or futures contracts.

Such licensing or other approval requirements under the SFA may apply equally to intermediaries based partly outside or outside of Singapore.  Similarly, a person based overseas who provides financial advisory services in Singapore could be deemed to be acting as a financial adviser in Singapore and may require a licence.

MAS’s Guide includes a number of helpful short case studies which help outline the approach it will take in this area.  The key points from these examples are summarised below.

• Pure utility tokens, e.g., tokens only carrying the right to access a platform/pay for some kind of service offered by the issuer of a digital token, would not constitute securities under the SFA.

• Digital tokens structured to represent a share in a company which owns some form of underlying asset would constitute securities under the SFA.  The issue or offer of such tokens may trigger the prospectus requirements under the SFA and the company may require a capital markets services licence for dealing in securities.

• A company which pools funds raised from an offer of digital tokens to use to invest in shares and distributes profits arising from managing its portfolio to token holders may have established a CIS, with the tokens constituting units in a CIS and therefore securities under the SFA.  Such an arrangement would need to be authorised or recognised in accordance with the SFA and may trigger the prospectus requirements in the SFA.  The company may also require a capital markets services licence for carrying on the regulated activity of fund management.

• Offers of tokens by Singapore-incorporated entities which expressly exclude persons in Singapore may nevertheless amount to carrying on the business of fund management in Singapore and therefore require a capital markets services licence.

• Digital tokens that amount to loans or debentures will constitute securities under the SFA and will trigger the prospectus requirements, unless an exemption applies.

• Platforms which allow trading of digital tokens that are securities under the SFA will require MAS approval or recognition in accordance with the SFA.

• Token issuers should consider whether their conduct amounts to providing financial advice, thereby necessitating a licence under the Financial Advisers Act in Singapore.

MAS has reaffirmed that businesses seeking to apply technology in innovative ways to provide financial services that are or are likely to be regulated by MAS are eligible to apply to enter the MAS regulatory sandbox and face relaxed specific legal and regulatory requirements.

[1] Monetary Authority of Singapore ‘A Guide to Digital Token Offerings’, dated 15 November 2017, available at http://www.mas.gov.sg/News-and-Publications/Monographs-and-Information-Papers.aspx

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