Much like Switzerland, the city-state of Singapore has emerged as an undisputed Hub for Initial Coin Offerings specifically ("ICOs") and blockchain technology in general. This is highlighted by the amount of investments flowing into Singapore-based ICOs since 2014, i.e. almost USD 200 million, ranking third after the United States of America and Switzerland respectively.¹¹⁹ Singapore's domination of the ICO-market has been ascribed to many factors, its rule of law reputation, its standing as a leading global financial center and the Monetary Authority of Singapore's ("MAS") pragmatic communication regarding ICOs being amongst them. In a statement issued on November 14th, 2017, MAS communicated that "offers or issues of digital tokens may be regulated by MAS if the digital tokens are capital markets products under the SFA. Capital markets products include any securities, futures contracts and contracts or arrangements for purposes of leveraged foreign exchange trading." In below country report, an overview over the regulatory framework governing token sales in Singapore will be provided. This will be followed by a display of the regulator's statements regarding ICOs and subsequently two ICOs which have been conducted from Singapore will be briefly summarized. Finally, Critical thoughts and a comparative analysis will be provided. Due to the lack of awareness regarding relevant decisions by courts or administrative bodies, this section will not be provided for this report.

Regulatory framework

In this section of the country report, specifically securities law (including collective investment schemes), money regulations (including both stored value facilities and anti money-laundering regulations) commodities regulation and lastly consumer protection will be looked at.

1. Capital Markets Law

i. Securities and Collective Investment Schemes

In Singapore, the offer and sale of securities is collectively regulated in the Securities and Futures Act (Cap. 289) (the "SFA"), its regulations, and related notices issued by MAS. A person issuing an instrument which qualifies as a security under the SFA must hence comply with the requirements and restrictions regarding the offer and sale of these securities as included in the abovementioned act. Under the SFA, securities are included in the umbrella category of capital market products.

Offers or issues of digital tokens may be regulated by MAS if the digital tokens are capital markets products under the SFA.¹²⁰ According to section 2 of the SFA, "capital markets products" include any securities, futures contracts and contracts or arrangements for purposes of leveraged foreign exchange trading. Amongst these capital market products, an emphasis will be put on securities hereinafter.

The SFA lists two almost congruent definitions of securities, one in section 2 (Interpretation) which generally applies and one in section 239 which specifically relates to offers of investments. The definition in section 2 lists the following as securities:

1. debentures or stocks issued or proposed to be issued by a government;
2. debentures, stocks or shares issued or proposed to be issued by a corporation or body unincorporate;
3. any right, option or derivative in respect of any such debentures, stocks or shares;
4. any right under a contract for differences or under any other contract the purpose or pretended purpose of which is to secure a profit or avoid a loss by reference to fluctuations in (i) the value or price of any such debentures, stocks or shares; (ii) the value or price of any group of any such debentures, stocks or shares; or (iii) an index of any such debentures, stocks or shares.
5. any unit in a collective investment scheme;
6. any unit in a business trust
7. any derivative of a unit in a business trust; or
8. such other product or class of products as the Authority may prescribe,

but does not include (i) futures contracts which are traded on futures market; (ii) bills of exchange; (iii) promissory notes; (iv) certificates of deposit issued by a bank or finance company whether situated in Singapore or elsewhere; or (v) such other product or class of products as the Authority may prescribe as not being securities.

The definition of securities in section 239 of the SFA lists the following as securities:

1. shares or units of shares of a corporation;
2. debentures or units of debentures of an entity;
3. Interests in a limited partnership or limited liability partnership formed in Singapore or elsewhere; or
4. such other product or class of products as the Authority may prescribe,

but does not include such other product or class of products as the Authority may prescribe as not being securities.

It must be noted, that both definitions (section 2 and section 239) of securities within the SFA are substantially similar in terms of the types of interests or instruments listed therein that are considered to be securities under Singapore law. For instance, shares and debentures are identified in sections 2 and 239 of the SFA as examples of securities. Furthermore, it must be noted that units in collective investment schemes also fall within the definition of securities in section 2 of the SFA. However, they are not mentioned under the definition of securities in section 239, which exclusively applies to the offerings of investments regarding shares and debentures.

As some tokens might be part of collective investment schemes which are regulated under Singapore law, the latter asset type is also included in this overview. Section 2 of the SFA defines collective investment schemes as arrangements in respect of any property under which the following prongs are (cumulatively) given:

(a) Participants have no day-to-day control over management of the property. Instead, the property is managed as a whole by or on behalf of the scheme operator; and

(b) participants' contributions, as well as the profits or income of the scheme from which payments are to be made to the participants, are pooled; and

(c) the purpose or effect of the arrangement is to enable its participants to participate in profits that arise from the scheme property.

ii. Tokens as Securities or Collective Investment Schemes

According to its guide to digital token offerings, MAS will examine the structure and characteristics of, including the rights attached to, a digital token in determining if the digital token is a type of capital markets products under the SFA.¹²¹ For instance, a digital token may constitute

• a share, where it confers or represents ownership interest in a corporation, represents liability of the token holder in the corporation, and represents mutual covenants with other token holders in the corporation inter se

• a debenture, where it constitutes or evidences the indebtedness of the issuer of the digital token in respect of any money that is or may be lent to the issuer by a token holder; or

• a unit in a collective investment scheme ("CIS"), where it represents a right or interest in a CIS, or an option to acquire a right or interest in a CIS.

In said guide, it is further noted, that the characteristics of a share or a debenture described hereinabove are not exhaustive.¹²²

iii. Regulatory Consequences

A person may only make an offer of digital tokens which constitute securities or units in a CIS ("Offer"), if the Offer complies with the requirements under Part XIII of the SFA. This includes the requirements that the Offer must be made in or accompanied by a prospectus that is prepared in accordance with the SFA and is registered with MAS ("Prospectus Requirements"). An Offer may nevertheless be exempt from the Prospectus Requirements where, amongst others

• the offer is a small offer of securities of an entity, or units in a CIS, that does not exceed S$5 million (or its equivalent in a foreign currency) within any 12-month period, subject to certain conditions;

• the Offer is a private placement offer made to no more than 50 persons within any 12-month period, subject to certain conditions;

• the Offer is made to institutional investors only; or

• the Offer is made to accredited investors only, subject to certain conditions.¹²³

The exemptions for a small offer, a private placement offer and an offer made to accredited investors, are respectively subject to certain conditions which includes advertising restrictions. In addition, where an offer is made in relation to units in a collective investment scheme, the collective investment scheme is subject to authorisation or recognition requirements. An authorised collective investment scheme or a recognised collective investment scheme under the SFA must comply with investment restrictions and business conduct requirements.¹²⁴

B. Money Regulations

i. Electronic Money

Under Singapore Money regulations, a token which is issued and allows for payment within the system or platform of an issuer, being used by users as a means of exchange to purchase and obtain, amongst others, goods and services on said issuer's platform, may be regulated as a payment system under the Payment System (Oversight) Act ("PS(O)A"), specifically as a "Stored Value Facility".

"Payment system" within the meaning of section 2, PS(O)A means a funds transfer system or other system that facilitates the circulation of money, and includes any instruments and procedures that relate to the system. Payment systems that operate a Stored Value Facility are regulated under, inter alia, the PS(O)A and its related regulations.¹²⁵ A Stored Value Facility ("SVF") is, generally speaking, a form of prepaid electronic cash or card that can be used within the system of the SVF issuer (also known as the "holder" of the stored value, as defined below).¹²⁶

Under section 2 of the PS(O)A, "stored value facility" is defined to mean "(a) a facility (other than cash), whether in physical or electronic form, which is purchased or otherwise acquired by a person (the "user") to be used as a means of making payment for goods or services up to the amount of the stored value that is available for use under the terms and conditions applying to the facility, and payment for the goods or services is made by the holder of the stored value ("holder") in respect of the facility (rather than by the user), or (b) all the facilities referred to in (a) provided under the same terms and conditions."

Under section 2 of the PS(O)A "Stored value", in turn, is defined to mean "the sum of money that (a) has been paid in advance for goods or services intended to be purchased through the use of the SVF, (b) is available for use from time to time for making payment under the terms and conditions applying to the SVF, and (c) is held by the holder of the SVF."

A SVF can either be single or multi purpose. A single purpose SVF is a SVF that is, or is intended to be, used for payment only of goods and/or services provided by the holder of that SVF.

A multi-purpose SVF is a SVF that is, or is intended to be, used for payment of goods and/or services provided by the holder of that SVF as well as third parties.¹²⁷

If the total stored value of a multi-purpose SVF exceeds S$30 million, the SVF will be regarded as a "widely accepted stored value facility" ("WA SVF").¹²⁸ Where the SVF is a WA SVF, the holder must be an "approved holder", and an "approved bank" must undertake to be fully liable for the stored value of the WA SVF.

ii. Tokens as a Stored Value Facility

In recent times, many tokens have surfaced which are not proprietary to their own blockchain but issued by a centralized counterparty, e.g. a corporation, to be used on the proprietary platform of said corporation. These tokens can oftentimes be used as a means of payment to purchase and obtain goods and services within that platform either from the issuer itself or third party participants on said platform.

Pursuant to the above definition of an SVF, such tokens could be an SVF in electronic form, as the token (i.e. the SVF) is purchased by a user to be used as a means of making payment for goods or services up to the amount of the stored value (i.e. the sum of money that (a) has been paid in advance for goods or services intended to be purchased through the use of the SVF). The token itself could be a single purpose SVF or a multi purpose SVF. A single purpose SVF is a SVF that is, or is intended to be, used for payment only of goods and/or services provided by the holder of that SVF, whereas the multi-purpose SVF is a SVF that is, or is intended to be, used for payment of goods and/or services provided by the holder of that SVF as well as third parties.

iii. Regulatory Consequences

SVFs that are not WA SVFs ("Non-WA SVFs") need not be approved by the MAS. However, the holder of a Non-WA SVF must mark, label or accompany the SVF with the following statement: "Consumer advisory — , the holder of stored value facility, does not require the approval of the Monetary Authority of Singapore. Consumers (users) are advised to read the terms and conditions carefully."¹²⁹

All holders of SVFs (whether WA SVFs or Non-WA SVFs) are subject to various ongoing requirements pursuant to the PS(O)A and the Payment Systems (Oversight) Regulations ("PS(O)A"), as well as the notification requirements under paragraph 2A of MAS Notice PSOA-N02 on Prevention of Money Laundering and Countering the Financing of Terrorism – Holders of Stored Value Facilities (dated 30 November 2015). In particular, a holder of a SVF must: notify the MAS at least 10 business days prior to the commencement of operations of the SVF; at least 10 business days prior to a change, notify the MAS of any change in any of the particulars set out in the notification form referred to above; and make an annual submission to the MAS in the prescribed form.¹³⁰

iv. Anti Money-Laundering Regulations

Generally, Financial institutions operating in Singapore are required to put in place robust controls to detect and deter the flow of illicit funds through Singapore's financial system. Such controls include the need for financial institutions to identify and know their customers (including beneficial owners), to conduct regular account reviews, and to monitor and report any suspicious transaction. The requirements on financial institutions are set out in MAS' Notices on the Prevention of Money Laundering and Countering the Financing of Terrorism (AML/CFT Notices) and cover obligations for Financial Institutions such as Capital Markets Intermediaries, Financial Advisers and Holders of Stored Value Facilities etc.131132

In its guide on digital token offerings, MAS clearly emphasises that these relevant MAS Notices and Guidelines on Prevention of Money Laundering and Countering the Financing of Terrorism may apply ("AML/CFT Requirements") in case an issuer of a token or a person engaged in the trading of such tokens acts as a financial institution and falls within the scope of any of the above Notices and Guidelines.¹³³

However, in many cases issuing a token which itself is not within the scope of MAS regulatory purview will not trigger the abovementioned AML/CFT Requirements. Therefore, it can be concluded that the sole issuance of a token, in case where the token does not qualify as a capital market product, a stored value facility, a commodity or any other regulated (financial) product and/or activity, the identification of every investor (in absence of suspicious transactions etc., see below) as part of a KYC-process is not required by law. However, MAS emphasises in its guide on digital token offerings, that these tokens which may not be within MAS' regulatory purview may nonetheless be subject to other, more general legislation for combating money laundering and terrorism financing. In this regard, MAS highlights the following obligations and prohibitions:

• Obligations to report suspicious transactions with the Suspicious Transaction Reporting Office, Commercial Affairs Department of the Singapore Police Force pursuant to section 39 of the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (Cap. 65A);

• Prohibitions from dealing with or providing financial services to designated individuals and entities pursuant to the Terrorism (Suppression of Financing) Act (Cap. 325) and various regulations giving effect to United Nations Security Council Resolutions.134

Given the regulatory void which exists in regard to some of the activities in relation to the issuance of digital tokens, MAS intends to publish a new payment services framework that will include rules to address money laundering and terrorism financing risks relating to the dealing or exchange of virtual currencies for fiat or other virtual currencies. Such intermediaries will be required to put in place policies, procedures and controls to address such risks. These will include requirements to conduct customer due diligence, monitor transactions, perform screening, report suspicious transactions and keep adequate records.135

C. Commodities

In the case of the United States of America, commodities regulations might be applicable to the issuance and trading in cryptographic tokens under some preconditions and subject to supervision by the respective regulatory authority, i.e. the Commodities and Futures Trading Commission. In this section, commodities regulation in Singapore will be explored and it'll be shown whether said regulation might, and if yes, how it might apply to the issuance of and trading in cryptographic tokens.

i. Commodities Trading Act

Commodities in Singapore are regulated under the Commodities Trading Act ("CTA"). Under the CTA, a person is prohibited from acting as, or holding himself out as, a "spot commodity broker", unless he holds a licence authorising him to act as such, or is exempted from the requirement to hold a licence.136 In this regard, "spot commodity broker" is defined to mean "a person whether as principal or agent who carries on the business of soliciting or accepting orders, for the purchase or sale of any commodity by way of spot commodity trading, whether or not the business is part of, or is carried on in conjunction with, any other business, but does not include a commodity broker".

A commodity is defined widely under the CTA to include "any produce, item, goods or article that is the subject of any: (a) commodity forward contract, (b) leveraged commodity trading, (c) contract made pursuant to trading in differences, or (d) spot commodity trading, and includes an index, a right or an interest in such commodity" (other than one that is the subject of a commodity futures contract), and does, e.g., include gold and rights in gold.¹³⁷

ii. Tokens as commodities

Subsequently, a token that represents rights in regards to a commodity, i.e. the right to convert into or redeem for physical gold bars, could itself fall within the broad definition of a "commodity" under the CTA.

If the token in question is qualified as a "commodity", the Issuer could be regarded as "carrying on the business of soliciting or accepting orders, for the purchase or sale of such tokens by way of spot commodity trading", and accordingly, fall within the definition of "spot commodity broker".

Depending on its specific terms, a token could also fall within the definition of "commodity contract" under the CTA. For instance, if the terms of the tokens are such that token holder will have a right to the difference in value of the good (e.g. a gold bar) linked to the token between the time at which the token was acquired, and at the time the token is sold, the tokens would be regarded as "commodity futures contracts". If the tokens are "commodity contracts", the Issuer could be regarded as carrying on the business of soliciting, or accepting orders, for the purchase or sale of any commodity by way of or relating to any tokens, and accordingly, fall within the definition of "commodity broker".

iii. Regulatory Consequences

A person is prohibited from, whether as principal or agent, carrying on or holding himself out as carrying on business as a "commodity broker", unless he holds a commodity broker's licence or is exempted from this requirement.¹³⁸

Notwithstanding the above, section 14A of the CTA read with the Schedule of the CTA sets out a number of exemptions from the requirement to hold a commodity broker's licence in specified circumstances. These exemptions include the exemption where a person carries on the business of trading in commodity contracts only with accredited investors and not with any other person ("CTA AI Exemption"). As such, an issuance or trading of tokens (where the tokens are characterised as "commodity contracts" under the CTA) would not trigger a licensing requirement under the CTA if the relevant Issuer or trading entity is able to rely on the CTA AI Exemption (i.e., the tokens are only issued to persons who are accredited investors, and token holders only trade or sell their tokens with other accredited investors).139

However, it must be noted, that while a person may be exempted from holding a commodity broker's licence under the CTA AI Exemption, such an exemption from the licensing requirement does not automatically exempt such person from the other requirements under the CTA and Commodity Trading Regulations 2001 ("CTR") that apply to commodity brokers.

D. Consumer protection

Consumer Protection in Singapore is mostly regulated under the consumer protection (Fair Trading) Act (CPFTA). The CPFTA took effect on March 1st, 2004. Since then, consumers who have been at the receiving end of unfair practices have been empowered to take civil action for themselves. The Act sets out a list of specific unfair trade practices and empowers consumers to seek civil remedies. It is the responsibility of the business to prove that it did not commit the unfair practice. However, businesses that commit unfair trade practices will not be subject to criminal sanction as the CPFTA is not a criminal Act. Since 15 April 2009, the CPFTA was amended to cover financial products and services.¹⁴⁰

Issuers of tokens are bound by the CPFTA regarding the contracts governing initial coin offerings only to the extent where the claim in question is not exceeding USD 30'000.¹⁴¹

For example, under the CPFTA, it is an unfair practice for a supplier to do or say anything, or omit to do or say anything, if as a result, a consumer might reasonably be deceived or misled; to make a false claim; to take advantage of a consumer if the supplier knows or ought reasonably to know that the consumer: (i) Is not in a position to protect his own interests, (ii) Is not reasonably able to understand the character, nature, language or effect of the transaction or any matter related to the transaction. It is furthermore prohibited to commit any of the 20 unfair practices as specified in the Second Schedule of the CPFTA. Regarding financial products and services, consumers can approach FIDReC (Financial Industry Disputes Resolution Centre) for resolution of unfair practices by financial and insurance institutions.¹⁴² Therefore, issuers of tokens must adhere to the principles under the CPFTA when conducting an ICO. However, issuers of tokens are bound by the CPFTA regarding the contracts governing initial coin offerings only to the extent where the claim in question is not exceeding USD 30'000.¹⁴³

Critical thoughts and comparative analysis

Singapore's regulatory framework is at face closer to the code-based European approach to regulating offerings of investments in securities issuances than it is to the dynamic, flexible approach applied in the United States. As Singapore is a common law jurisdiction, case law will nevertheless exert an important influence over the future understanding of tokens and how they might fit into the existing regulatory framework or how said framework will be amended in the future.

Due to the reasons highlighted above, Singapore will most likely continue to be a hub for blockchain innovation in general and token sales specifically. With its comprehensive Nov. 14 guideline, MAS has shown its openness to welcome startups which are keen on using the novel financing mechanism of the ICO while simultaneously demonstrating that it will exert its regulatory authority in case of violations of the existing law. Furthermore, MAS has detected some loopholes in the existing financial market regulation which need to be amended to ensure the objectives of the current legislation on combating e.g. money-laundering are expanded to be comprehensively applied.

Due to these reasons, Singapore will most likely continue to be a hub for blockchain innovation in general and token sales specifically. The rather restrictive approach of other jurisdictions' regulators in Singapore's vicinity might possibly further reinforce Singapore's role as Asia's leading crypto-hub.

Benedikt Schuppli