The Monetary Authority of Singapore (“MAS”) has, on 1 August 2017, issued clarification on the offer or issue of digital tokens in Singapore (“Clarification”). These clarifications come in the wake of a recent increase in the number of initial coin offerings (“ICOs”) in Singapore as a means of raising funds. Examples include the blockchain startup TenX which raised close to US$80 million from a token sale, and Cross Coin, a special purpose vehicle incorporated in Singapore to invest in an accelerator empowering Eastern European frontier technology companies through exposing them to the United States market, which raised US$5.0 million.
Unlike existing traditional fundraising methods through equity/debt, ICOs involve fundraising through the issue of digital tokens in return for investors’ monies, which are invested in the form of a cryptocurrency such as Bitcoin or Ether. These digital tokens are secured representations of the holder’s rights to receive a benefit or to perform specified functions, and are a form of cryptocurrency specific to the fundraising company or its projects. The digital tokens can be traded on secondary markets, thereby providing potential returns to the token holders.
Like most jurisdictions, MAS does not regulate virtual currencies. However, MAS had, in 2014, clarified that intermediaries in virtual currencies are regulated for money laundering and terrorist financing risks. This Clarification serves to provide additional guidance on other situations where the offer or issue of digital tokens may be subject to regulation. In particular, the Clarification focuses on situations where digital tokens, especially those which do not merely function as virtual currencies, may fall within the definition of “securities” under the Securities and Futures Act (Chapter 289) of Singapore (“SFA”). Examples include digital tokens representing (a) ownership or a security interest over the issuer’s assets or property, or (b) a debt owed by the issuer. In these situations, such tokens may be considered (a) shares or units in a collective investment scheme, or (b) debentures under the SFA. If so, there are several implications.
Firstly, the offer of such digital tokens through ICOs will fall within the scope of an offer of securities within the SFA, requiring such offers to be accompanied by a prospectus lodged and registered with the MAS, unless an exemption applies. Secondly, issuers and/or intermediaries of such digital tokens may also be subject to licensing requirements under the SFA and the Financial Advisers Act, as a holder of a capital markets services licence and/or a financial adviser’s licence. In addition, platforms facilitating the secondary trading of such tokens will also need to be approved/recognised by the MAS as an approved exchange/recognised market operator, as the case may be.
Given the above, companies who intend to launch ICOs in Singapore must be cognizant of the nature of the tokens to be issued, and whether these fall within the definition of “securities” under the SFA. MAS has reminded all issuers of digital tokens, intermediaries facilitating or advising on an offer of digital tokens, and platforms facilitating secondary trading in such digital tokens, to seek independent legal advice to ensure compliance with all applicable laws, and where appropriate, to consult with the MAS.