Digital Token Offering Advisory Services
As Singapore positions itself as a leading FinTech hub, digital token offerings (DTOs) have become a popular method for raising capital, driving innovation, and fostering growth in the financial services industry.
At Advomi, we specialise in advising businesses, investors, and startups on the legal and regulatory aspects of digital token offerings and other token offerings under the framework of Singapore’s Securities and Futures Act and related laws.
Understanding Digital Token Offerings
A digital token offering is a method of raising funds by issuing digital tokens that may serve various purposes depending on their design and functionality. These tokens can be categorised into securities tokens, payment tokens, or utility tokens, each with unique characteristics and regulatory considerations.
When a digital token constitutes a capital markets product – such as security tokens that represent ownership interest or mutual covenants – it is subject to stringent regulations.
In Singapore, ensuring compliance with the Monetary Authority of Singapore (MAS) is critical. This includes adhering to prospectus requirements and other applicable regulations to facilitate a lawful and successful token offering.
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.
Security Tokens
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.
STOs issue security tokens tied to underlying assets and are governed by strict securities laws, offering greater transparency and protection for token holders and accredited investors. In contrast, ICOs issue utility tokens, granting access to products or services but operating in a less regulated environment, making them quicker to launch but riskier for investors.
Utility Tokens
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.
Key Legal Considerations for Digital Token Offerings in Singapore
Advomi provides comprehensive advisory services to ensure compliance with Singapore’s regulatory regime for DTOs. This includes:
- Securities Laws: Determining whether your digital tokens fall under the Securities and Futures Act and advising on advertising restrictions and prospectus requirements.
- Monetary Authority of Singapore Guidelines: Navigating MAS regulations, including licensing as a recognised market operator or compliance with payment services regulations.
- Anti-Money Laundering (AML) Compliance: Assisting with robust policies to prevent money laundering and enhance transactional transparency.
- Investor Protections: Structuring offerings to safeguard the interests of token holders and comply with applicable requirements for accredited investors.
Our Advisory Services for Digital Token Offerings
We offer tailored advisory services to clients navigating the complexities of token offerings, including:
- Regulatory Analysis
- Determining whether the digital tokens qualify as capital markets products or fall under securities laws.
- Providing clarity on whether the offering digital tokens constitutes a collective investment scheme or involves regulated activities.
- Compliance with the MAS
- Guiding compliance with the Monetary Authority of Singapore’s (MAS) guidelines and licensing requirements, such as registering as a recognised market operator or listing on an approved exchange.
- Advising on adherence to advertising restrictions and disclosure obligations for accredited investors.
- Legal Documentation and Opinions
- Drafting white papers, offering memorandums, and commercial agreements that align with Singapore’s legal framework.
- Providing legal opinions on securities-based derivatives contracts, utility tokens, and digital payment tokens.
- Anti-Money Laundering (AML) and Customer Due Diligence
- Assisting with anti-money laundering (AML) compliance and customer due diligence requirements to ensure transparency and mitigate risks.
- Support for Trading Platforms
- Advising on structuring primary platforms and trading platforms for already existing digital tokens or newly issued tokens.
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