Singapore Watchdog Follows In US Counterpart's Footsteps To Regulate ICOs

Josh O'Neill Assistant Editor 2 August 2017

Singapore Watchdog Follows In US Counterpart's Footsteps To Regulate ICOs

Although this article focuses on the Monetary Authority of Singapore, the issues surrounding Initial Coin Offerings are global.

Singapore's central bank and regulator has weighed in on the issuance of digital tokens known as Initial Coin Offerings, saying that some will come into its scope as certain types of tokens will be subject to securities regulations.

The Monetary Authority of Singapore said yesterday that it will regulate offers or issues of digital tokens in Singapore if they fit the criteria for products regulated under the Securities and Futures Act.

Like most jurisdictions, the MAS does not regulate crypto-currencies, such as bitcoin. However, the regulator said it had “observed that the function of digital tokens has evolved beyond just being a virtual currency”. As a result, digital tokens may represent ownership or a security interest over an issuer's assets or property, the MAS says.

“Such tokens may therefore be considered an offer of shares or units in a collective investment scheme,” the MAS said. They may also represent a debt owed by an issuer and be considered a debenture under the Securities and Futures Act, it added.

In cases where digital tokens are considered equivalent to securities, their issuers would be required to lodge and register a prospectus with the MAS prior to an initial offering, unless exempted. Issuers and intermediaries would also be subject to the MAS' licensing requirements.

The regulator's announcement chimes with a statement made last week by Wall Street's main watchdog, the Securities and Exchange Commission, which said that tokens could be considered securities, and consequently may need to be registered unless a valid exemption applies.

Richard Howlett, a founding partner of Selachii law firm who specialises in crypto-currencies and blockchain, welcomed the idea of regulating ICOs.

“The industry needs regulating to grow, as it currently suffers from a reputation akin to the Wild West,” he told this publication. “The current situation with no regulation confuses genuine investors as to what is or is not a genuine ICO. No serious, large-scale investor would really consider an ICO a safe investment.”

ICOs have gained momentum in recent years as digital currency entrepreneurs increasingly use them to raise millions quickly by creating and selling digital tokens with no regulatory oversight. It has been said that because many tokens are listed and traded on crypto-currency exchanges, large holders could gain more price-controlling powers. Some ICOs have faced criticism as they failed to accurately disclose token distribution, such as what proportion of tokens would be held by founders.

The MAS said that ICOs are “vulnerable to money laundering and terrorist finance due to the anonymous nature of the transactions”, adding that it had noted a rise in the number of ICOs in Singapore as of late.

“With all ICOs, the main risk in my opinion is ‘pump and dump’,” Howlett said. A pump and dump, he explained, is when investors collectively orchestrate a mass buying of a new crypto-currency, which drives the price up to “sometimes well over 500 per cent”, and then sell their holdings.

“With regulation, this would be illegal,” Howlett said.

By mid-July this year, technology firms had raised around $1.1 billion through 89 coin sales, roughly 10 times more than that in the whole of 2016, according to Reuters. There are 110 upcoming ICOs still to come this year, according to, an online token sales tracker.

Those who favour deregulation and decentralisation might suggest that rolling out regulatory red tape could drive down the number of ICOs because of additional costs and compliance burden on firms.

But for Howlett, the juice would still be worth the squeeze.

“It will also encourage genuine, large investors into the ICO market once they have the safety net of regulation,” he said. “If a token is [classed as] a security, then investors are more willing to invest. At some point, people will realise that ICOs are indeed an amazing investment opportunity but with massive risks. If the risk is reduced, then the potential returns may also be reduced. But they could become a serious alternative to trading shares on the stock market.”

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