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MAS Reform Bill Increases Regulation of Virtual Asset Service Providers

AML Compliance Knowledge & Training

The Monetary Authority of Singapore (MAS) is set to be granted enhanced powers to regulate virtual asset service providers (VASPs) as part of a significant new bill consolidating its supervisory powers.

The Financial Services and Market (FSM) Bill will enable MAS to introduce general powers over VASPs, including licensing requirements and powers to conduct anti-money laundering and counter-terrorism financing (AML/CFT) inspections. The bill also aligns the scope of digital token services to reflect the latest enhanced Financial Action Task Force (FATF) standards.

MAS says the reforms reflect the increasing need for a “financial sector-wide regulatory approach” in addition to entity and activity-based regulations.

While the Financial Action Task Force’s (FATF’s) latest mutual evaluation of Singapore in 2016 was generally positive, it highlighted that virtual currencies were “widely regarded as an area of future growth”, and this was identified in the national risk assessment as requiring further study.

To mitigate the risk of regulatory arbitrage, the enhanced FATF standards require VASPs to be licensed or registered in the jurisdictions where they are created.

Digital Token Services

The new FSM Bill will also regulate all VASPs that provide digital token (DT) services outside of Singapore. These will be regulated as a new class of FIs, with licensing and other ongoing regulatory requirements. 

DT services within scope of the new powers include:

  • Dealing in DTs
  • Facilitating the exchange of DTs
  • Inducing or attempting to induce any person to enter into or to offer to enter into any agreement for or with a view to buying or selling any DTs in exchange for any money or any other DTs (whether of the same or a different type)
  • Accepting DTs for the purposes of transmitting, or arranging for the transmission of, the DTs
  • Safeguarding of a DT or DT instrument, where the service provider has control over the DT or over one or more DTs associated with the DT instrument
  • Financial advice relating to the offer or sale of DTs

Technology Risk Management

Addressing the continued digitization of financial services, the bill will impose requirements on technology risk management to “ensure safety and soundness of the IT systems used by FIs to deliver financial services.” Data protection and cyber security are both called out specifically as areas of focus, with the maximum penalty for breaches being raised to S$1m. In the event of continued offenses, fines of S$100,000 “for every day or part of a day during which the offense continues after conviction” are planned. 

Expanded Prohibition Powers

The legislation will also allow MAS to prohibit anyone “who is not fit and proper” from engaging in any activity regulated by MAS and from performing a prescribed list of key roles and functions in the financial sector. 

This broadens the categories of persons who may be subject to prohibition orders and widens the scope to cover functions that are “critical to the integrity and functioning of financial institutions,” MAS said.

Statutory protection

Finally, the FSM bill provides statutory protection from liability for mediators, adjudicators and employees of those who operate approved dispute-resolution schemes.

Compliance staff operating in Singapore should familiarize themselves with the new bill (a helpful explanatory brief can be found here), ensure that they fully understand suggested changes to MAS’s scope, and consider how their risk-based approach to AML/CFT risks may need to be revised if the bill becomes law.

Through innovations in areas such as intelligence sharing, MAS has long been seen as an forward-thinking regulator, meaning it’s likely that other national regulatory bodies will be looking into the provisions of the legislation, to identify opportunities for alignment in their own countries. 

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Originally published 18 February 2022, updated 23 February 2022

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