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What is Virtual Currency Exchange in Singapore?

Lior Pick & Co. Legal Offices
01.04.2019
April 1, 2019

Virtual Currency Exchanges allows the trading and exchange of cryptocurrency (virtual currencies or utility tokens) for other cryptocurrencies or for fiat currency.

Nevertheless, this trading and exchange is not limited to virtual currencies or utility tokens. VCEs can also list security tokens for trading. The Securities and Futures Act (SFA) provides that no person shall establish or operate an organized market, or hold himself out as operating an organized market, unless the person is an “approved exchange” or a “recognized market operator”.

The MAS must therefore approve the operator of a VCE that want to engage an activity to facilitate secondary trading of tokens that have the characteristics of securities. When one digital token listed on the VCE can be regarded as “capital markets products”, the VCE as a whole may be requalified as an organized market and would need the approval of the MAS.

Moreover, the operations of VCEs are subject to risks on anti-money laundering (AML) and countering the financing of terrorism (CFT). Some measures are therefore necessary, such as the implementation of high-standard Know-Your-Client (KYC). The verification of the identity of customers would reduce the risk of litigations and the AML/CFT risks. If MAS’ regulations don’t apply to a cryptocurrencies, Singapore’s legal system will still impose obligations to companies to protect the final customer. For instance, companies have to report suspicious transactions in accordance with the section 39 of the Corruption Drug Trafficking and Other Serious Crimes Act to the Suspicious Transaction Reporting Office, Commercial Affairs Department of the Singapore Police Force.

The qualification of VCEs might change under the Payment Services Bill if it is enacted. In fact, VCEs would be qualified as “providing virtual currency services”. The operation of a VCE would be an activity of “facilitating the exchange of virtual currency” if virtual currencies are not “capital markets products” (security tokens) under the SFA. VCEs will be therefore required to apply for a licence to operate in Singapore.

A FinTech start-up can’t really afford conducting KYC. Notably, they need to reduce the expense and the amount of time dedicated in KYC. Customer Due Diligence is really important to verify a customer’s identity. E-KYC are used by banks and other entities to check the customer’s informations (name, id number, date of birth, nationality and residential address). A Circular has been issued for the use of MyInfo, an e-KYC application that is supposed to be reliable according to MAS. FinTech companies would have to comply with the KYC obligations imposed in Singapore.

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