Singapore backtracks, unveils new Bitcoin regulations

After stating it won't restrict transactions involving the digital currency, Monetary Authority of Singapore now says operators of virtual currencies including Bitcoin ATMs must abide by new rules to address risks associated with terrorist funding and money laundering.
Written by Eileen Yu, Senior Contributing Editor

Singapore has backtracked on its previous stance not to impose restrictions on Bitcoin transactions, deciding to now regulate the crytocurrency in a bid to safeguard against terrorist funding and money laundering. 

The Monetary Authority of Singapore (MAS) said in a statement Thursday it will "regulate virtual currency intermediaries" operating in the country due to the associated risks. These intermediaries include operators of Bitcoin exchanges as well as Bitcoin vending machines. 

Just two weeks ago, Singapore-based trading platform, Bitcoin Exchange, launched the first two Bitcoin ATMs in the city-state, located in a bar in the CBD while the other is in an underground shopping area along Orchard Road. 

The exchange will now need to abide by new rules stipulated by the MAS. 

In its statement, the regulator said it will introduce legislations requiring virtual currency intermediaries that buy, sell, or facilitate the exchange of such currencies for real currencies to verify the identities of their customers. They are also to report "suspicious transactions" to an intelligence unit within the country's Commercial Affairs Department, MAS said, adding that this is already required of money changers and remittance businesses handling cash transactions. 

The new regulations are necessary due to the anonymous nature of virtual currency transactions, making them particularly vulnerable to money laundering and terrorist financing risks, it noted. 

"Singapore, like most jurisdictions, does not regulate virtual currencies per se, as these are not considered as securities or legal tender. MAS' regulation of virtual currency intermediaries pertains specifically to the money laundering and terrorist financing risks they pose," the regulator explained.

It further reiterated its warning that investors of virtual currencies will bear the risks of transacting in such currencies, and will not enjoy the safeguards that investors in securities have under Singapore's Securities and Futures Act as well as the Financial Advisers Act.

MAS had previously underscored the high risks associated with virtual currencies, pointing to the volatility of their prices and the lack of any identifiable legal issuer. 

The regulator's deputy managing director, Ong Chong Tee, said: "MAS is taking a targeted regulatory approach to virtual currencies to specifically address money laundering and terrorist financing risks. Consumers and businesses should take note of the broader risks that dealing in virtual currencies entails and should exercise the necessary caution."

The regulator said the new regulations will be among the first in the world to be implemented in a country, and additional rules may be further introduced to address associated risks. MAS added that it will monitor developments of virtual currencies and other regulatory measures undertaken by major jurisdictions. 

The announcement comes just days after the mysterious death of Autumn Radtke, CEO of a Singapore-based virtual currency exchange First Meta, which platform processes the sale and purchase of currencies including Bitcoin, Linden dollars (used in Second Life virtual world), and FriendsHangout Tokens. Established in February 2007, First Meta was the first virtual bank to provide credit card and corporate financial services in Second Life.

At least three Bitcoin exchanges in recent weeks had lost customer funds due to cyberattacks, prompting two to file for bankruptcy protection. Poloniex just last week admitted it lost 12.3 percent of Bitcoins--worth about US$50,000--stored in hot wallets on the website. Trading was halted, and CEO Tristan D'Agosta said processing and design flaws in its system had allowed hackers to commit the theft. He said he was looking at ways to compensate his customers. 

The Poloniex theft had followed that of Mt. Gox, which shuttered last month and filed for bankruptcy protection in Japan after years of undetected infiltration in which hackers stole 750,000 customer-owned Bitcoins and Mt. Gox's own stash of some 100,000 coins, estimated to be worth a total of US$500 million. System design flaws, hackers, and poor accountancy practices were blamed for the losses.

A third exchange, Flexcoin, also shut its doors after hackers stole 896 Bitcoins estimated to be worth about US$606,000.

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