Singapore Tightens Crypto Rules, Offshore Exchanges Face Shutdown

Singapore has taken a firm stance on regulating cryptocurrency exchanges, enforcing new rules that require all offshore digital token service providers (DTSPs) to obtain a license or shut down their operations by June 30, 2025. This move by the Monetary Authority of Singapore (MAS) is driven by concerns over high money laundering risks and the need for enhanced oversight in the crypto market. The new regulations also include a ban on credit purchases and the implementation of the Travel Rule, which mandates that exchanges share information about the originator and beneficiary of transactions.

The regulatory tightening follows a series of high-profile collapses that have damaged market confidence. The downfall of Three Arrows Capital (3AC) and Terraform Labs, both based in Singapore, has highlighted the need for stricter controls. 3AC's collapse in 2022, following a market crash, led to the arrest of its co-founder Su Zhu, who was sentenced to four months in jail. Terraform Labs' Do Kwon fled the country and was later extradited to the U.S. on fraud charges, resulting in the loss of about $40 billion in investor funds and triggering wider losses across the crypto market.

In response to these incidents, MAS is drawing a hard line to prevent similar disasters in the future. The new DTSP regime reinforces financial integrity as a red line, aligning Singapore with global anti-money laundering and terrorism financing standards set by the Financial Action Task Force (FATF). This shift is seen as a long-overdue fix by analysts, who welcome the move as a step towards creating a more secure and transparent environment for crypto transactions.

For crypto companies using Singapore as a base to serve clients abroad, the new rules present a challenging but necessary adjustment. They must either obtain a license or cease operations. This regulatory change is part of Singapore's effort to protect its position as a serious player in global finance and to rebuild trust after the high-profile collapses. The ban on offshore exchanges like Bitget and Bybit is a direct result of past incidents, underscoring the government's commitment to curbing illicit activities within the crypto space.

The implementation of the Travel Rule is a significant step towards enhancing transparency and accountability. By requiring exchanges to share detailed information about transactions, the MAS aims to deter money laundering and other financial crimes. The ban on credit purchases is another key aspect of the new regulations, designed to protect retail investors from the risks associated with leveraged trading. By prohibiting the use of credit for crypto purchases, the MAS aims to prevent investors from taking on excessive debt, which could lead to financial instability.

The impact of these regulations on the crypto industry in Singapore is expected to be profound. Offshore exchanges that fail to comply with the new licensing requirements will be forced to shut down their operations, potentially leading to a consolidation of the market. This could result in fewer but more robust exchanges operating within the region. The MAS's actions are part of a broader global trend towards stricter regulation of the crypto industry, with other jurisdictions also implementing measures to enhance oversight and curb illicit activities.