Singapore may regulate digital tokens where appropriate

Industry regulator says it will step in if the offer or issue of digital tokens involved products regulated under the country's Securities and Futures Act, following recent launches involving real estate.
Written by Eileen Yu, Senior Contributing Editor

The Singapore government says it will step in to regulate the offer or use of digital tokens if these involved products regulated under the country's Securities and Futures Act.

The move was prompted a recent spate of launches in which initial coin offerings (ICOs), or digital tokens, were tapped as a means of raising funds, said Monetary Authority of Singapore (MAS) in a statement Tuesday. It defined digital tokens as "a cryptographically-secured representation of a token-holder's rights to receive a benefit or to perform specified functions". These included virtual currencies, which functioned as a medium of exchange, a unit of account, or a store of value, it said.

The regulator pointed to its previous statement in March 2014 when it said intermediaries in virtual currencies would be regulated against money laundering and terrorist funding risks. These organisations also were required to report suspicious transactions.

Likewise, ICOs were vulnerable to similar risks due to the anonymity involved in such transactions and the ease with which large sums could be raised in a short period of time, MAS said. It added that it currently was evaluating how it should regulate activities involving digital tokens, which did not function solely as virtual currencies, against money laundering and terrorist funding risks.

It noted that while it had taken a position of not regulating virtual currencies, per se, the function of digital tokens had evolved that of a virtual currency.

"For example, digital tokens may represent ownership or a security interest over an issuer's assets or property. Such tokens may, therefore, be considered an offer of shares or units in a collective investment scheme under the Securities and Futures Act," MAS explained, adding that digital tokens also might represent a debt owed by an issuer and be considered a debenture under the act.

Should digital tokens be considered under the act, issuers of such tokens must lodge and register a prospectus with MAS prior to the offer of such tokens, unless officially exempted. These organisations also would have to adhere to licensing requirements as well as other applicable requirements on anti-money laundering and countering the financing of terrorism.

It added that platforms facilitating the trading of digital tokens must be approved by the regulator as an approved exchange or or recognised as a market operator under the Securities and Futures Act.

MAS' announcement came amid recent launches involving local companies that used blockchain to value real estate property. One such company, Reidao, said it was creating digital tokens backed by real estate with its proprietary Token ID for each property listed on its platform.

"Every Token ID will have its own cap of tokens available or created, its own valuation--based on the property that is backing it--and its own track record of price movements, rental income and dividend, and so on," the Singapore company said on its website.

"We want to democratise property opportunities, to be accessible by everyone, wherever they are. By buying and selling these tokens, you are--in a way--buying and selling fractions of the underlying property," it said.

Reidao added that it hoped to operate a "Property Tokens Exchange Board", which would function like a stock exchange, listing "tokenised" properties available globally.

Earlier this week, the first lawsuit involving a bitcoin exchange was filed in Singapore, in which Quoine was alleged to have wrongfully reversed a transaction estimated to worth US$3.78 million. The Singapore-based exchange, which previously raised more than US$20 million in funds, currently processed US$50 million worth of transactions a day.

Filed by electronics maker B2C2, the lawsuit said Quoine had reversed a transaction that had gone through the day before where B2C2 had placed orders to sell Ethereum for bitcoin. Quoine said the trades were executed at an "abnormal rate"--125 times higher than the day's market price of Ethereum--due to a system glitch and, hence, reversed the transaction.

B2C2 said Quoine had "acted fraudulently' since the exchange's trading agreement stated that orders were irreversible once filled. Its lawsuit sought to recover 3084.78582325 bitcoin from Quoine.

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