Written by: Gyro Finance
With the strong support of the United States, the world seems to be relaxing regulation on the crypto market, but there is one country that is doing the opposite.
On May 30, the Monetary Authority of Singapore (MAS) issued the final policy guidelines for digital token service providers (DTSP), announcing that the new regulations for digital token service providers (DTSP) will be officially implemented on June 30. According to the new regulations, all crypto service providers registered or operating in Singapore must stop providing services to overseas customers before June 30, 2025 if they have not obtained a DTSP license.
This move caught the crypto market off guard, local practitioners cried out in grief, and the market also heard slogans of Singapore's Web3 retreat. Is it a retreat or a defense? Is it a plan or a radical dictatorship? The sudden change in the regulatory situation has disrupted the market, and the call for compliance is being sounded around the world, and the industry is inevitably drifting with the tide.
01 Relying on regulatory advantages, Singapore has become a hotbed for Web3 development
Let’s go back to four years ago. At that time, China’s crypto industry was undergoing a major cleanup. Hong Kong had not yet issued a virtual asset declaration. The sovereign status of the Western crypto world was rising. Chinese Web3 entrepreneurs all chose Singapore as their next safe place to stay.
The answer to choosing Singapore is also very simple. Singapore is the best springboard for the Western market. It not only has the advantages of a developed economy and a stable political situation, but also has a more suitable cultural circle for the Chinese. Against this background, talents, projects, derivative investments and service agencies have gathered, and Singapore has become a hot spot for Chinese Web3 investment. At that time, more than 47 cryptocurrency exchanges were located in Singapore. Well-known exchanges such as Coinbase, Binance, and FTX all used Singapore as their headquarters or R&D center in the Asia-Pacific region. The bigwigs also once used Singapore as a safe haven. Zhao Changpeng once had a record of living in Singapore for a long time, and Wu Jihan is already a permanent resident of Singapore.
Of course, the core of all this is inseparable from Singapore's own policy openness. From the perspective of policies and regulations, in 2019, Singapore launched the (Payment Services Act), which clarified the licenses for digital tokens and required local companies that provide services such as crypto exchange to apply for licenses. According to the nature and scope of the services, apply for "currency exchange" licenses, "standard payment institution" licenses, and major payment institution licenses. In 2020, Singapore passed the (Crypto Offering Guide) and proposed the (Financial Industry Comprehensive Bill), which basically laid the foundation for clear licensing and responsibilities for crypto licenses. Looking at the global crypto market at the time, my country had already clearly defined the ban, US regulators were caught in a battle for dominance, and it was difficult for European countries to unify their systems. Singapore was the first country to truly create a relatively loose and clear policy regulatory environment, and there were exemption regulations that temporarily allowed the provision of specific payment services.
Singapore released the final policy guidelines for digital token service providers (DTSP) on May 30, and later released the final response document to the regulatory consultation on digital token service providers (DTSP) under Section 9 of the Financial Services and Markets Act 2022. It finally made it clear that there is no service without a license, and no transition period was given, causing panic among all practitioners.
02 Cliff-like regulation? Singapore introduces the strictest new regulations
First of all, it should be made clear that the "big retreat" and "cliff-like regulation" circulating in the market are exaggerated. Singapore's regulatory signs in the crypto field have long been apparent. In 2022, Singapore MAS introduced the (Financial Services and Markets Act), of which Part 9 specifically introduced a licensing system for digital token service providers, namely DTSP. This is the first time that this system has appeared in Singapore legislation. In June, the head of Singapore's fintech policy said that Singapore will take "cruel and ruthless harsh measures" against bad behavior in the cryptocurrency industry.
FTX at the end of 2022 was a critical turning point. The collapse of FTX brought a series of investment institutions to the pillar of shame, one of which was Singapore's sovereign fund, Temasek Investment Company. Because of FTX, Temasek was forced to write off its $275 million investment. After this incident, the Singapore government made it clear that its reputation was damaged and even punished the investment team and senior management at the time with salary cuts.
In May 2023, the Financial Services and Markets (Amendment) Act was passed, strengthening the sharing of customer information among financial institutions to combat money laundering and terrorist financing supervision, and in August of the same year, stablecoins were included in the framework.
In 2024, MAS launched a consultation document on the regulatory approach, regulations, notices and guidelines for digital tokens in response to this law. The wording in the document is quite interesting. “Due to the Internet-based and cross-border nature of digital token services, digital token service providers (DTSPs) are more vulnerable to money laundering/terrorist financing (ML/TF) risks… The main risk posed by DTSPs to Singapore will be reputational risk, that is, if they are involved in or abused for illegal purposes, it may damage Singapore’s reputation.”
Finally, on June 30 this year, the new regulations for digital token service providers (DTSP) were officially implemented. Looking back at the regulatory process, there was actually a three-year preparation period from proposal to implementation, during which the government also gave clear progressive signals, and there was obviously no cliff-like regulation.
From a global perspective, the licensing system is the core of crypto regulation, including the United States, Hong Kong, and Europe. Singapore's previous payment bill also used licenses as a tool for subject control. As for why a small license could cause such a stir this time, it all comes down to regulatory arbitrage.
The crypto industry is a global business, but the regulatory system is usually territorial, which creates the possibility of arbitrage. Obtaining a license in a regulatory depression and then conducting business globally has basically become the consensus of the industry. In Singapore's previous regulatory laws, although there are strict requirements for conducting business locally, they are very relaxed for overseas business, that is, companies registered in Singapore can freely provide services to overseas customers, which is undoubtedly a natural fit for the crypto business. It is in this context that many exchanges have chosen to flock to Singapore.
However, this type of arbitrage will be officially terminated in this new regulation. Judging from the specific content of DTSP, the supervision can be described as strict. First of all, the subject is clear and covers a wide range, that is, as long as individuals and enterprises with business premises in Singapore engage in business, regardless of the location of the operation, as long as they involve digital token-related business, they must obtain a DTSP license; secondly, the definition of business premises is very broad. The official clearly pointed out that "business premises" can be any place used to conduct business, even temporary or mobile places such as roadside stalls. This point is completely a special regulation for the encryption industry, especially for remote office and home office personnel and enterprises; the regulated services cover almost the entire industry chain. In addition to technical consulting and marketing promotion, from token issuance, custody, brokerage, transaction matching, transfer payment, verification governance and even custody technology development, they will be included in the licensed business, and the supervision has essentially achieved no loopholes.
In addition to the content of the license regulations, the license entry threshold is also very high. The competent authority MAS has clearly stated that it will only issue DTSP licenses in "extremely limited circumstances", requiring not only that the applicant's business model is reasonable, but also that the operation method will not cause regulatory disputes, that is, it is necessary to obtain regulatory approval at the place of operation, and even have requirements for organizational structures, governance frameworks, and capital adequacy. In fact, the strictness of license issuance can be seen from the current number of license issuances. In the Singapore fever in 2021, more than 500 institutions submitted license applications to Singapore, but 4 years have passed. As of now, the official website of Singapore MAS shows that only 33 companies including BITGO, CIRCLE, COINBASE, GSR, Hashkey, OKX SG, etc. have obtained DTSP licenses, and the application approval rate is less than 10%.
It is worth noting that there is a certain amount of exemption space in the licensing system. If a company has obtained a license in the framework of Singapore's (Securities and Futures Act), (Financial Advisors Act) and (Payment Services Act), it does not need to apply for DTSP again, but only needs to implement the audit, risk management and other requirements required by the new regulations. This is relatively friendly to companies that have applied for licenses in the previous relatively relaxed stage. From the official website, 24 companies including COBO, ANTALPHA, CEFFU, MATRIXPORT, etc. are on the exemption list. On the other hand, if an individual only works remotely as an employee, signs a contract with a Singaporean overseas registered entity, and only serves overseas customers, there is no need to apply for a license, but if he participates in business in Singapore as an individual, it will be included in the regulations.
In short, if entities that have not applied for a license and are within the scope of supervision do not arrange the process as soon as possible, both individuals and enterprises will face the end of liquidation before June 30, and from the above, it can be seen that this almost includes the entire industry chain. Especially for start-up projects, the minimum paid-in capital of 250,000 Singapore dollars and the annual fee of licensed institutions are up to 10,000 Singapore dollars. The high cost can only bring another large migration to start-up projects. From the current point of view, not only individual practitioners have plans to leave Singapore, but even some crypto exchanges have plans to move away. "Compared with other regions, Singapore's costs are not advantageous. In the context of tightening compliance, some exchanges may move to Hong Kong for market considerations. Individual practitioners will have more choices. In addition to other Southeast Asian countries with lower costs, Dubai and Japan are also popular places. Even if there are no new regulations, the number of practitioners leaving Singapore has been increasing in recent years." An exchange crypto practitioner working in Singapore said.
In response to Singapore's new regulations, Hong Kong has also launched a declaration to recruit talents. A few days ago, Hong Kong Legislative Council member Wu Jiezhuang posted on social media that "Since the release of the virtual asset declaration in 2022, Hong Kong has actively welcomed the industry to develop in Hong Kong. According to informal statistics, thousands of Web3 companies have landed in Hong Kong. If you are currently engaged in related industries in Singapore and are interested in moving your headquarters and personnel to Hong Kong, I am willing to provide assistance and welcome you to develop in Hong Kong!" It can be seen that although it seems to be a new regulation, in the long run, it will also have a far-reaching impact on the global crypto industry.
03 Small investors finally retreat, and large institutions come to the fore
From a policy perspective, Singapore's move is very resolute. It not only faces the loss of projects that will be caused by the strict system, but also clearly expresses the government's zero-tolerance regulatory attitude towards arbitrage loopholes, and also rings the alarm bell for the development of Singapore's local Web3 industry. The easing is gone forever, and tightening is the kingly way. Through high compliance costs, small and gray projects will be completely reshuffled, and large enterprises with strong backgrounds, strong strength and sufficient capital will be clearly encouraged to settle in. The healthy and sustainable industry is the starting point of Singapore's policy.
Considering the essence, why is Singapore so determined to increase supervision? In addition to the spirit of rule of law that originates from the local area, the key is that the industry's benefits cannot offset the negative externalities. From the perspective of the country, the crypto industry seems to be growing, but due to its unique decentralized nature and the development of global business, the tax direction is significantly lower than that of the same industry. But at the same time, the electronic fraud and gray production brought by the crypto industry continue to breed. According to data issued by the Singapore Police Force, cryptocurrency fraud has become a high-incidence incident in Singapore's fraud cases, rising sharply from about 6.8% in 2023 to about 24.3% in 2024, and the situation is becoming severe. It is worth mentioning that cryptocurrency also played an important role in the previous 10 billion money laundering case in Singapore. Low taxes, many crimes, and the simultaneous squeezing of local residents' production and living resources to cause internal conflicts, in the face of this situation, Singapore, which has always adhered to strict governance, has issued regulatory policies at this time, and there is reason to follow.
In fact, this is also the reason why my country considers its regulatory strategy. Compared with Singapore, my country has a large population base, higher regulatory complexity, and more alarming policy arbitrage. In the end, my country chose a tougher "one-size-fits-all" governance, while Singapore retained part of the market to strike a balance between regulation and innovation.
Singapore's transformation can also echo the transformation of global regulation. For the crypto industry, the trend of compliance is unstoppable, and compliance has changed from a multiple-choice question to a must-answer question. In the past, the development strategy of global crypto companies was to find regulatory depressions, and the grayer the more concentrated, but now, under the premise that the regulatory mechanism has been clarified in the United States, Europe, Hong Kong, Singapore and other places, only by embracing compliance and moving towards the sun can we truly achieve long-term development. Compliance also determines the background of industrial development to a certain extent. The bargaining and competitiveness of large institutions will be far higher than that of other companies, and the opportunities of start-ups will also be greatly squeezed. From the mainland to Hong Kong, and from Hong Kong to Singapore, now setting sail again, for start-ups, it is not terrible to live by the grass. Finding the place that best fits their own business may be the issue that must be solved in the development process.
