The Monetary Authority of Singapore (MAS) – the country’s central bank – has sought to clarify the local regulatory situation regarding digital token sales, as more and more businesses turn to the format in an effort to secure funding.
The lack of regulatory clarity around token sales has raised a number of questions about their legality in Singapore and farther afield.
One of the key issues is whether tokens should be categorized purely as a form of currency, or as a type of security. The latter implies that a token constitutes a form of equity in the business that issued it, or a debt instrument signifying money owed to its holder.
If a digital token fulfills the definition of a security under these laws, then issuers would likely have to register a prospectus with MAS before launching their ICOs.
In a statement issued today, MAS said it “has observed that the function of digital tokens has evolved beyond just being a virtual currency,” to the point that some coins “may represent ownership or a security interest over an issuer’s assets or property.” This would bring such tokens into the purview of Singapore’s Securities & Futures Act and Financial Advisers Act, the statement adds.
If a digital token fulfills the definition of a security under these laws, then issuers would be required to register a prospectus with MAS before launching their ICOs. Moreover, they would also be subject to licensing requirements for securities vendors, and any digital token secondary market operators would have to gain regulatory approval from MAS.
Currently, would-be token issuers are not explicitly compelled to get the green light from MAS before initiating a crowdsale.
A slew of companies built around blockchain technology have launched token sales – commonly described as “initial coin offerings” or ICOs – in recent months, taking advantage of what is widely viewed as a favorable environment for blockchain businesses in Singapore.
Token sales are a form of crowdfunding where backers receive digital tokens, rather than equity or rewards, in return for their investment. These tokens act as a form of cryptocurrency, typically for use within the fundraising company’s own blockchain-based platform, and are issued with the expectation that they can be sold and traded through secondary markets in the future. The tokens are purchased from their issuers using digital currencies such as Bitcoin and Ether.
In the statement, MAS also highlights its concern that “ICOs are vulnerable to money laundering and terrorist financing risks due to the anonymous nature of the transactions and the ease with which large sums of monies may be raised in a short period of time.” Assessing these potential risks will clearly add another regulatory hurdle for many companies hoping to raise funds through token sales.
Worldwide, over US$1 billion is said to have been raised through token sales for issuing companies as of last month. Some Singapore-based businesses that have run token sales include gold price tracker Digix, which raised US$5.5 million; startup incubator Cofound.it, which cancelled its ICO after hitting its US$15 million funding target in a pre-sale; and ewallet provider TenX, which raised US$80 million in less than seven minutes.
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