Recent Developments
Hong Kong and Singapore are two countries that stand out in Asia as being promising grounds for the establishment of crypto exchanges. The cities are offering dedicated regimes, tokenization projects and regulation sandboxes to draw digital asset firms and solidify their positions. In 2024, Singapore issued 13 new crypto licenses to established operators such as OKX, Upbit, Anchorage, Bitgo, GSR and more, up from 4 full MPI licenses issued in 2023. This is in stark contrast to Hong Kong, another Asian city with a similar licensing regime, which has only issued 7 in total. This discrepancy further highlights Singapore as the more propitious option of the two.
Existing interest from foreign and domestic companies
Owing to stable regulatory frameworks, there has been much interest from foreign and domestic companies to set up crypto exchanges in Singapore. Singapore’s crypto scene is largely governed by the Monetary Authority of Singapore (MAS), with the Payment Services Act (PSA) 2019 serving as the primary framework for cryptocurrency-related operations. The PSA sets out two frameworks, licensing and designation, which regulate licensing and identification and regulation of critical payment systems for financial stability and public confidence in Singapore crypto regulation and designation of systems impacting competition or efficiency in the financial system respectively.
Setting up a crypto exchange in Singapore
In order to set up a crypto exchange in Singapore, a company has to ensure that they have sufficient grounds to establish themselves here and adhere to regulatory requirements. This can be done by consulting the steps below.
1. Formulation of business plan and strategy
To secure a Singapore payment institution license, you will have to satisfy a few requirements, namely a local executive director, a local compliance officer, local registered address/office and paid up capital of at least S$100,000. Compliance with regulations is essential as failure to do so may result in fines of S$250,000 or the striking off of your company. Apart from this, a company should also conduct market research, set out a distinct value proposition that they could provide, determine their exchange business model, establish a form of technological infrastructure, draw up and define financial projections, determine marketing and user acquisition strategies relevant to Singapore, conduct risk assessment and more. Contact us to ensure that your business plan is robust and complies with the requirements.
2. KYC/MAS Plan & Internal Auditing
MAS and the Accounting and Corporate Regulatory Authority (ACRA) set out a clear KYC structure as per the Prevention of Money Laundering and Countering the Financing of Terrorism Act. KYC certification requires:
- The company’s full name
- Identification proof and confirmed nationality for all directors, shareholders, and ultimate beneficial owners
- A resolution from the company’s board of directors
- Copies of the company’s certificate of incorporation, business profile, and any merger or acquisition agreements
- Proof of operating address
According to MAS’ Guidelines on Risk Management Processes – Internal Controls, an institution must also have in place an adequately staffed, independent and permanent internal audit function to assess whether existing policies, processes and internal controls, including risk management, compliance and corporate governance processes, are independent, effective and appropriate for the institution’s business.
3. Procuring Legal Opinion
Procuring a third-party legal opinion from a law firm will be essential to adhering to regulatory requirements and ascertaining if a payment service license is required to deal with Digital Payment Tokens (DPTs). Contact us for a legal opinion.
4. License Submission Application
License applications can be a messy process to navigate but are still essential to your business. Contact our team to handle it for you.
5. Meet threshold requirements
Obtaining a crypto license in Singapore implies the fulfilment of several criteria, some of which include:
- Having a local executive director
- Having a local compliance officer
- Having a local registered address
- Having a paid-up capital of at least S$100,000
Failure to comply with these regulations could result in hefty fines.
6. Liaise with MAS
Liaising with MAS will ensure that your company meets the requirements and licensing framework will safeguard your company interests and make sure that any unique business situations are accounted for.
7. Maintenance and Updating of compliance frameworks
A company wishing to set up a crypto exchange must, on a regular basis, maintain and update their compliance frameworks to keep up with the similarly changing regulations. Consult our team for help on this matter.
Conclusion
Contact our panel of blockchain lawyers for help in setting up a crypto exchange.
