Singapore Mandates Licensing for All Crypto Firms, Ending Regulatory Arbitrage

Singapore’s latest directive from the Monetary Authority of Singapore (MAS) mandates that unlicensed crypto firms must either obtain a license or cease operations, marking a significant shift in the regulatory landscape for the blockchain industry. This move, effective from May 30, targets firms and individuals offering services abroad, signaling a global crackdown on money laundering and terrorism financing.

While some industry players may perceive this as a sudden change in Singapore’s crypto-friendly stance, the city-state has consistently pushed for compliance. The directive aligns with a broader global trend of tightening oversight and closing regulatory loopholes. Joshua Chu, a lawyer and co-chair of the city’s Web3 association, noted that jurisdictions like Singapore, Thailand, Dubai, and Hong Kong are all tightening their regulatory frameworks, making it increasingly difficult for firms to avoid compliance.

Singapore has historically been a hub for regulatory arbitrage in crypto, thanks to its Payment Services Act (PSA), which requires licensing for firms serving local clients. Many crypto companies have sidestepped licensing by focusing on overseas markets, given Singapore’s relatively small domestic population. However, the latest MAS directive effectively ends this practice, requiring all firms offering digital token services to clients overseas to be licensed.

The MAS has maintained a consistent stance on this issue, with public consultations and statements dating back to February 2022. The Financial Services and Markets Act (FSMA) has not changed; rather, the MAS has completed public consultations and is now enforcing the requirement for licensing. Patrick Tan, general counsel at ChainArgos, emphasized that Singapore is first and foremost a global financial center, not necessarily a crypto one, and that organizations will need to reflect on what they are seeking to obtain from a license.

As firms consider their next moves, speculation is growing over which jurisdictions might become more attractive. Recent developments suggest that Singapore is not an outlier but part of a global regulatory shift. For instance, the Philippines now requires all licensed crypto firms to maintain a physical office in the country, while Thailand has expelled at least five exchanges over licensing and money laundering concerns. Hong Kong, Singapore’s regional rival, has also emerged as an option, with Bybit, one of the exchanges recently expelled from Thailand, considering Hong Kong for future licenses.

However, firms looking to pivot to Hong Kong may find that fewer companies have succeeded in securing licenses there. As of June 6, the city had issued only 10 crypto licenses, compared to 33 digital payment token licenses approved by MAS under the PSA. This indicates that being a “crypto hub” often means facing tighter yet clearer regulatory frameworks. Neither Hong Kong nor Singapore has taken a laissez-faire approach, and both jurisdictions have moved to order all unlicensed exchanges to exit the market.

Looking ahead, regulatory actions are anticipated from other major crypto centers, including the European Union with its MiCA framework, the United Kingdom’s evolving crypto laws, South Korea, and Japan. These jurisdictions are all committed members of the Financial Action Task Force (FATF) with mature or maturing regulatory regimes. Singapore’s FSMA expanded regulatory oversight of crypto service providers, particularly those serving overseas clients, and complements the PSA to align with FATF’s mandates on the Travel Rule and Anti-Money Laundering (AML) standards.

The pace of regulatory alignment accelerated after the FATF’s February plenary session, which launched public consultations on improving payment transparency and addressing the complex trails used for money laundering and sanctions evasion. For FATF members like Singapore and Hong Kong, tightening AML standards is expected. However, for non-members that fall short of compliance, inclusion on the FATF gray list can be economically devastating. Jurisdictions that exit the gray list often work “extra hard” to stay off it, as seen in the cases of Thailand, the Philippines, and the United Arab Emirates.

Dubai, the UAE’s emerging financial center, has been a magnet for crypto businesses due to its friendly rules and dedicated regulator. However, legal experts warn against misunderstanding the ecosystem, as Dubai is still on the probation list and characters who think they are safe there might be in a bit of a false sense of security. This means that the era of hopping jurisdictions to dodge regulation is coming to a close, and even the most welcoming hubs are demanding compliance. As crypto firms search for their next base, the list of friendly but lenient destinations is shrinking, and the global push for compliance is becoming increasingly unavoidable.