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Entities offering digital tokens or facilitating activities vis-à-vis such digital tokens should, as a starting point, review whether the digital tokens fall within the definition of CMPs under the Securities and Futures Act 2001 (SFA). If they are CMPs, entities should determine the specific type of CMP the digital token would be classified as.

Thereafter, entities should further assess whether any regulatory requirements under the SFA or other regulatory regimes (such as the Financial Advisers Act 2001 (FAA) or Payment Services Act 2001) will apply to their proposed activities vis-à-vis such digital tokens.

In more detail

1. Whether a digital token is a CMP

When assessing whether a digital token will be regulated as a CMP, the assessment should focus on the economic substance of the digital token. This would generally comprise a holistic examination of the digital token, including its characteristics, intent and structure, as well as the bundle of rights attaching to or derived from the token.

In the Guide on Tokenisation, the MAS provided non-exhaustive case studies to illustrate when a digital token is likely to be a CMP, as well as when a digital token is unlikely to be a CMP.

Entities may wish to refer to the case studies but should obtain independent legal advice where necessary to ensure that their products and activities adhere to regulatory requirements at all times. If necessary, the MAS also provides an avenue for prospective issuers and offerors of digital tokens to write to the MAS to consider whether such offerings are subject to MAS regulations.

2. Regulations relating to tokenised CMPs

A. Regulation of offers of tokenised CMPs

Offers of tokenised CMPs (such as digital tokens that constitute securities, securities-based derivatives contracts or units in a collective investment scheme) are subject to the same regulatory regime as the equivalent non-tokenised CMPs under Part 13 of the SFA. Hence, offers of tokenised CMPs would be subject to the same product offering requirements under the SFA and attendant regulations that apply to non-tokenised CMPs. This includes prospectus requirements and distribution safeguards for complex products (where a tokenised CMP is classified as a complex product), unless exemptions apply.

The MAS highlighted that prospectus requirements under the SFA include an expectation for a prospectus to disclose all information that investors and their professional advisers would reasonably require to make an informed assessment of, among other things, the issuer and the product being offered. In the context of tokenised CMPs, this should include information related specifically to the characteristics of and risks arising from the tokenised nature of the CMP, including information on the following:

1. Technologies underpinning the deployment of the tokenised CMP
2. Rights and liabilities in relation to tokenised CMPs
3. Custody arrangements for the tokenised CMPs and for assets backing the tokenised CMP (if any)
4. Technology, cyber, operational, legal/regulatory risks and other risks (e.g., pricing and liquidity risks) applicable to tokenised CMPs and tokenisation

B. Regulation of other activities relating to tokenised CMPs

Persons carrying out activities relating to tokenised CMPs may be regulated under the SFA or another regulatory regime, such as the FAA. For example, this includes the following:

1. Persons operating primary market platforms, on which offerors of tokenised CMPs may make primary offers or issuances of tokenised CMPs
2. Persons operating trading platforms on which tokenised CMPs are traded
3. Persons providing custody, or having possession or control, of tokenised CMPs
4. Persons providing financial advice in respect of tokenised CMPs

These persons may be subject to licensing requirements under the SFA and/or other regulatory regimes such as the FAA.

In addition to licensing requirements, these persons should also consider whether they are subject to ongoing conduct requirements, such as in relation to anti-money laundering and countering the financing of terrorism (AML/CFT), as set out in various MAS notices. The MAS also highlighted that even where a person is not subject to licensing or regulation by the MAS, they may nonetheless be required to abide by obligations under general Singapore AML/CFT legislation (e.g., the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act 1992 and the Terrorism (Suppression of Financing) Act 2002).

3. Extra-territoriality of regulations relating to tokenised CMPs

Entities issuing/offering tokenised CMPs, or carrying out activities relating to tokenised CMPs, are also reminded that the relevant securities laws (e.g., the SFA and FAA) have extraterritorial effect, as follows:

1. Where any issuance or offering of tokenised CMPs or any SFA-regulated activity in relation to tokenised CMPs is done partly in Singapore and partly outside Singapore, or done outside of Singapore but which has a substantial and reasonably foreseeable effect in Singapore, the requirements of the SFA may apply extra-territorially to such acts.
2. The requirements of the FAA apply extra-territorially where the person engages in any conduct or activity that is intended to or likely to induce the public, or a section thereof, in Singapore to use any financial advisory services in respect of tokenised CMPs provided by the person.

4. Regulatory sandbox

The MAS also highlighted that any firm applying technology in an innovative way to conduct activities regulated by the MAS under the SFA and/or FAA may apply to join the regulatory sandbox programme. Prior to making applying to the MAS, interested firms should conduct relevant due diligence to evaluate their suitability for the regulatory sandbox programme. 

If an application is approved, the MAS will provide the appropriate regulatory support by relaxing specific legal and regulatory requirements that the firm would otherwise be subject to (for the duration of the sandbox). 

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