Measures to better counter money laundering and terrorism financing were approved yesterday, under changes to the law that regulates virtual payment service providers.
These changes will also strengthen laws governing digital payment tokens (DPTs) to ensure that companies issuing such tokens protect the assets of their users, said Transport Minister Ong Ye Kung, who is a Monetary Authority of Singapore (MAS) board member.
Parliament passed the Payment Services (Amendment) Bill yesterday, following a roughly two-hour debate that saw 10 MPs taking part.
Under the changes, Singapore will implement enhanced standards for virtual asset service providers who deal in DPTs, otherwise known as cryptocurrencies.
Cryptocurrencies have been gaining popularity internationally since the introduction of the first one, bitcoin, in 2009. Over the past weekend, it was reported that bitcoin saw its price pass US$30,000 for the first time, based on data compiled by Bloomberg news agency.
Previously, MAS regulated cryptocurrency service providers only when they possessed money or the cryptocurrency itself - but this has now been expanded.
Under the Bill, MAS has the power to regulate service providers that facilitate the use of cryptocurrencies for payments, and who may not possess the money or cryptocurrencies involved.
This will cover three activities: facilitating the transmission of cryptocurrencies from one account to another; custodial services for cryptocurrencies; and facilitating the exchange of cryptocurrencies where the service provider does not come into possession of the moneys or cryptocurrencies involved.
Although the use of cryptocurrency has yet to fully take off in Singapore, Mr Ong noted that the speed and cross-border nature of cryptocurrency activities carry higher inherent money laundering and terrorism financing risks.
They need to be regulated, and service providers must carry out proper customer due diligence and monitoring of transactions.
"Global standards setting bodies, regulators and policymakers around the world are focused on addressing these risks," he said.
"As a major financial centre and fintech hub, Singapore has played an active role in shaping international standards, including at the Financial Action Task Force which sets standards for combating money laundering and terrorism financing risks."
Mr Ong added that the Bill will broaden the definition of crossborder money transfer services to include facilitating transfers of money between persons in different jurisdictions, where money is not accepted or received by the service provider in Singapore.
The changes to the law will allow MAS to impose measures on cryptocurrency service providers to ensure better consumer protection.
Although the risks to consumers are not significant currently due to the low usage of cryptocurrency here, Mr Ong pointed out that user adoption could gain traction quickly as the industry comes out with products to attract customers.
He said that with the new laws, MAS could require a cryptocurrency service provider to segregate customer assets from its own assets, which will help safeguard customer money from loss in the event of insolvency.
MAS will also be empowered to impose additional measures on certain cryptocurrency service providers to maintain stability in Singapore's financial system, safeguard the efficacy of the monetary policy, or where it is in the interest of the public to do so.
Acknowledging the broad scope of powers that this gives MAS, Mr Ong said this was necessary so that the authority can respond flexibly and swiftly, given how fast-moving the cryptocurrency landscape is.
Some MPs like Mr Louis Ng (Nee Soon GRC) and Ms Ng Ling Ling (Ang Mo Kio GRC) had asked if there would be enhanced measures to prevent people, including the elderly, from being misled by false marketing to invest in cryptocurrencies or from incurring large losses from investing in them.
Mr Ong said that MAS currently requires licensed cryptocurrency service providers to clearly disclose to their customers that they should invest in them only if they are familiar with the products, and are prepared to accept the risk of losing all the money put into the service providers. "If DPT service providers make a statement that suggests that investment in DPT is protected under the Payment Services Act, MAS will require them to immediately correct or remove the statement. And they will be subject to enforcement actions," he said.
Workers' Party MPs Jamus Lim (Sengkang GRC) and Leon Perera (Aljunied GRC) had asked Mr Ong about the potential detrimental effects from regulating small players in the cryptocurrency space - to which the minister replied there was a need for balance between encouraging entrepreneurship and protecting consumers.
"Companies can come up with products that are more attractive. And today, what we are doing, we believe, is an appropriate and calibrated response," said Mr Ong.
He added that the Government will continue to educate the public on cryptocurrencies through the national financial education programme MoneySense.