In recent years the number of companies dealing with blockchain in Singapore has increased immensely. Thus, initial coin offerings (ICOs) have become more and more popular as means of access to capital. The regulatory aspects of tokenomics are an important part of the FinTech regulation in Singapore.
What are the types of tokens?
Depending on the nature of a token it can either be a “security” or a “utility” token. Security tokens constitute rights of ownership in a company, indebtedness evidences or derivative products. Utility tokens are mostly app tokens that allow token holders to access certain features of applications built on the blockchain. Security tokens are regulated by MAS and entities that issue or trade with these tokens must obtain a license.
Under the latest guidelines provided by the Monetary Authority of Singapore which are consistent with previous instructions and clarifications, “security” tokens are digital tokens that constitute capital market products. They are further defined in the Securities and Futures Act (SFA) which states that capital market products include:
- Shares when in general they confer or represent ownership, rights, and liabilities in a corporation;
- Debentures that constitute evidence of indebtedness of the issuer;
- Tokens that represent an ownership interest in the trust property of a business trust;
- Tokens that represent securities-based derivatives contracts involving any of the assets mentioned above;
- Tokens that represent rights of interest in collective investment schemes (CIS).
The issuing and offering tokens that constitute capital market products are considered Security Token Offering (STO) and holding such offering must be compliant with the SFA.
A token can be safely considered a utility token when it is not a security one. Utility tokens in general support services or functionalities on blockchain-based platforms. These types of tokens are not suitable for investment in companies. They give different rights to the owners of the tokens like participation in networks and voting rights
Regulation of Security Token Offerings (STOs)
Entities who make offers of security tokens must comply with the requirements of the SFA. The most important rule is that the ICO (STO) must be accompanied by a prospectus that must be registered with MAS. There are some exceptions to this rule where a prospectus is not required:
- Small (personal) offers that do not exceed S$5 million within any 12-month period;
- Private placement offers made to no more than 50 persons within any 12-month period;
- Offers made to only institutional or accredited investors*
Although a prospectus is not necessary for these types of ICOs they are still subject to some regulations including advertising restrictions.
Accredited Investors in Singapore
An accredited investor in Singapore is an individual or an entity that covers the criteria below.
Individuals Accredited Investors
An individual that qualifies as an accredited investor in Singapore:
- Has net personal assets exceeding S$2 million or
- Has financial assets exceeding S$1 million or
- Has an income in the preceding 12 months, not less than $300,000.
Corporations Accredited investors
In order for a corporation to qualify as an accredited investor in Singapore it must have net assets exceeding S$ 10 million in value.
Regulation of Platforms and Marketplaces for ICOs
In general, there are two types of platforms which facilitate transactions with tokens in Singapore:
- Primary platforms that allow users to act as offerors of digital tokens by designing, issuing and offering these tokens.
- Trading platforms which merely allow users to trade already existing digital tokens.
Entities that establish and operate primary platforms that allow users to issue and offer security tokens may be required to hold a capital market service license under the Payment Service Act (PSA). Operators of trading platforms, on the other hand, may, in certain circumstances be required to obtain approval for their activities from MAS.
Another important consideration is that entities providing any service of dealing in digital payment tokens or any service of facilitating the exchange of digital payment tokens must be licensed under the PSA for AML/CFT purposes only and will be required to put in place policies, procedures and controls to address its ML/TF risks.
Advomi connects you with a panel of expert lawyers specializing in the FinTech industry, ready to assist with a wide range of services including:
- Legal Opinions on any matters regarding the FinTech industry in Singapore
- Structuring and establishing of Singapore companies
- Statutory compliance with the regulation governing payment services, AML/CFT measures, ICO/STOs
- Obtaining a license for a payment institution
- Drafting legal documents like corporate documents, prospectuses, white papers and commercial agreements