Singapore is seeking to cement itself as a key player for cryptocurrency-related businesses as financial centres around the world grapple with approaches to handle one of the fastest-growing areas of finance.
“We think the best approach is not to clamp down or ban these things,” said Ravi Menon, managing director of the Monetary Authority of Singapore (MAS), which regulates banks and financial firms.
Instead, MAS is putting in place “strong regulation”, so firms that meet its requirements and address the multitude of risks can operate, he said in an interview.
Nations differ vastly when it comes to how they handle crypto: China has cracked down on large amounts of activity in recent months, Japan only recently allowed dedicated crypto investment funds – though El Salvador has embraced Bitcoin as legal tender. In the United States, while there are many options for investing in the burgeoning asset class, regulators are concerned about everything from stablecoins to yield-generating products.
“With crypto-based activities, it is basically an investment in a prospective future, the shape of which is not clear at this point,” said Menon, who has helmed the MAS for about 10 years. “But not to get into this game, I think risks Singapore being left behind. Getting early into that game means we can have a head start, and better understand its potential benefits as well as its risks.”
The stakes are high for the small island nation, which has already earned a reputation as a global wealth hub. Singapore must raise its safeguards to counter risks including illicit flows, Menon said.
The city-state is “interested in developing crypto technology, understanding blockchain, smart contracts and preparing ourselves for a Web 3.0 world”, he said, referring to the third generation of online services.
Singapore is not the only place with crypto ambitions. Locations as diverse as Miami, El Salvador, Malta and Zug in Switzerland, are also making efforts. It can be a fine line to tread, given the crypto industry grew up with few regulations, so many players baulk at government officials’ attempts to impose guardrails.
Singapore’s approach has attracted crypto firms from Binance Holdings Ltd, which has had a series of run-ins with regulators around the world, to Gemini, a US operator targeting institutional investors, to set up a base. Some 170 companies applied for a MAS licence, taking the total number of firms seeking to operate under its Payment Services Act to about 400, after the law came into effect in January 2020.
Since then, only three crypto firms have received the much-coveted licences, while two were rejected. About 30 withdrew their application after engaging with the regulator. Among those approved is the brokerage arm of DBS Group Holdings Ltd, Singapore’s largest bank, which is also a pioneer in setting up a platform for trading of digital tokens while offering tokenization services.
The regulator is taking time to assess applicants to ensure that they meet its high requirements, Menon said. The MAS has also boosted resources to cope with high volumes of prospective services operators, he said.
“We don’t need 160 of them to set up shop here. Half of them can do so, but with very high standards, that I think is a better outcome,” he said.
Menon said the benefits of having a well-regulated local crypto industry could also extend beyond the financial sector.
“If and when a crypto economy takes off in a way, we want to be one of the leading players,” he said. “It could help create jobs, create value-add, and I think more than the financial sector, the other sectors of the economy will potentially gain.”