Singapore is a hub for global finance and trade, and is aiming to be a regional leader of financial technology (fintech) as well. The Monetary Authority of Singapore (MAS) has rolled out several initiatives as part of Singapore’s efforts to establish itself as a regional fintech hub.
Among these, Project Ubin is a notable collaborative project undertaken by the MAS and industry to explore the use of distributed ledger technology (DLT) for clearing and settling payments and securities transactions with the aim of making them more transparent, resilient and cheap.
In the area of fintech, the MAS has taken a collaborative and proactive approach in engaging with industry. In response to industry feedback, the MAS is looking to foster self-regulation efforts while continuing to develop legislative options for regulating electronic payments, including the use of cryptocurrencies and blockchain.
More recently, the MAS proposed to review the Recognised Market Operators (RMO) regime by creating new tiers of RMOs to encourage the development of new business models in securities trading platforms, including those utilising blockchain. The consultation paper on the review of the RMO regime was published in May 2018 to seek public feedback.
Initial coin offerings (ICOs) have become a popular way to raise funding for the development of blockchain projects by fintech startups. In an ICO, instead of shares or other securities in exchange for investment, the buyer is offered digital tokens, which are typically then listed on cryptocurrency exchanges to be traded. In this way, buyers of tokens achieve liquidity very quickly instead of waiting years for a startup company to go public or be acquired before they can realise their investment.
Singapore has emerged as one of the top ICO markets in the world, rivalling the US and Switzerland. Funds raised through ICOs conducted in Singapore amounted to US$641 million from 35 ICOs in 2017. In the first half of 2018, the amount raised by ICOs in Singapore reached an estimated US$1.19 billion from as many as 53 ICOs.
One of the reasons that Singapore has been successful in attracting ICOs is the regulatory certainty and clarity in the treatment of digital tokens under Singapore law. For example, instead of trying to classify tokens into utility tokens, payment tokens, security tokens, etc., the Singapore Securities and Futures Act (SFA) defines clearly what securities (and other regulated capital markets products) are.
In addition, the MAS has issued various statements and a guide on digital token offerings to clarify whether, and in what circumstances, digital tokens may constitute securities or units in a collective investment scheme. It should be noted that the MAS has also issued warnings to the public on the risky nature of ICOs.
This is unlike the broader approach taken by other regulators. In China, ICOs are banned, as are cryptocurrency exchanges. Many ICOs now typically exclude buyers from jurisdictions such as the US and China in order to avoid regulatory issues.
Once a token is defined as a security, trading the token would be very difficult, as no cryptocurrency exchanges are currently licensed to operate as securities exchanges under the laws of any country. For example, in May 2018, the MAS warned eight digital token exchanges in Singapore not to facilitate trading in tokens that are securities or futures contracts without its authorisation. An ICO issuer was also warned to stop offering its digital tokens in Singapore as its tokens represented equity ownership in a company and can only be offered with a MAS-registered prospectus.
Singapore is also addressing other areas of importance to fintech innovation, including intellectual property (IP). Given the fast pace of technological development and change in this field, being able to obtain IP rights over key fintech innovations can be critical for innovators to keep competitive edge over imitators. A strong IP position protects both the innovator as well as its partners against other competitors. With a sustainable competitive advantage offered by sound IP governance, investors would also be more willing to fund the company.
However, patents often take many months and even years to be granted, resulting in a gap in protection for fintech inventions during the early critical phase of driving market adoption and growth. Recognising the need to obtain IP protection quickly, the Intellectual Property Office of Singapore (IPOS) launched the Fintech Fast Track initiative in April 2018, which aims to reduce the time it takes to obtain a fintech patent to as little as six months.
The initiative includes fintech innovations relating to electronic payments, investment platforms, insurance technology, blockchain, banking, security, fraud, and authentication.
CHIEW YU SARN is a co-managing partner at Yusarn Audrey in Singapore. He can be contacted at +65 6358 2865 or on email at email@example.com