Describe how the Payment Services Act licenses firms that provide digital payment token services.
Darren has narrowed his choice of crypto app to two. One is a big international exchange his friends use, with a slick interface and every token he has heard of. The other is a smaller app whose website says it is licensed by MAS, and he wonders whether that line is worth anything or is just a badge on the homepage. The licence is worth quite a lot, and you should check it yourself rather than take it from the homepage.
In Singapore, buying and selling crypto, and the firms that help people do it, fall under the Payment Services Act. The Act calls cryptocurrencies such as bitcoin and ether digital payment tokens. Dealing in digital payment tokens, or helping others buy, sell or transfer them, is a digital payment token service under the Act. A firm providing digital payment token services in Singapore must hold a licence from MAS, the Monetary Authority of Singapore.
MAS has tightened the rules over time for Singapore firms that serve customers only outside Singapore. A firm cannot set up here, skip the licence and sell abroad. The detail of who needs which licence has changed more than once, so read the current position on the MAS website before relying on what you find elsewhere.
There is more than one kind of licence. A firm can apply for a Standard Payment Institution licence if its payment services stay within thresholds set by MAS, such as the value of transactions it handles each month. A firm whose business goes past those thresholds needs a Major Payment Institution licence instead. The thresholds are set in the regulations and can change, so look them up on the MAS website and not in articles. In practice, the Singapore-licensed crypto exchanges you are likely to meet hold a Major Payment Institution licence, and the directory described below confirms this for any one of them.
A licence is not a seal of approval for the tokens an exchange lists, and MAS states this plainly. What a licence does is place obligations on the firm, and MAS checks that they are met.
The first group covers anti-money laundering and counter-terrorism financing. The exchange must verify who its customers are, watch for suspicious transactions and report them. This is the reason opening an account involves identity checks, and the reason a large or unusual transfer can be held while the exchange asks you questions. These checks are a nuisance, but they hold the firm to standards a casual offshore operator is not held to.
The second group is technology risk management. MAS expects licensed firms to protect their systems and customer data, plan for outages and report serious incidents. Exchanges are tempting targets for hackers, so this matters directly to you as a customer.
The third group is ongoing supervision. A licensed firm reports to MAS, can be inspected, and can be ordered to fix problems or lose its licence. MAS has also added rules aimed at protecting retail customers, which Lesson 3.2, The protections MAS requires for retail customers, goes through.
MAS publishes the Financial Institutions Directory on its website. It is a public, searchable list of the firms MAS regulates. Each entry shows the firm's full legal name, the type of licence it holds and the activities it is licensed for. To check an exchange:
Go to the MAS website and open the Financial Institutions Directory. Search by the legal entity name as well as the brand name. The name of the app can differ from the company you actually sign up with, which may end in "Pte Ltd" or may be a different company in another country. Read the entry: the full legal name, the licence type and the licensed activities. Confirm the licence covers digital payment token services and not some other payment activity. Search again before you deposit, even if you checked last year.
The last step matters because the directory reflects the current position. Firms have left Singapore or withdrawn their applications in the past, so an earlier check may be out of date. Lesson 3.4, Run a licence and terms check on one exchange, turns this search into a full routine.
Many large overseas exchanges accept customers from anywhere online, whether or not they hold a Singapore licence. Some have previously been placed on the MAS Investor Alert List, which you will meet in Lesson 3.3.
If an exchange has no MAS licence, none of the licence protections above apply to your account. No Singapore regulator supervises how it holds your assets, and nobody in Singapore can order it to fix a problem. If it fails, there is no local framework for dealing with your claim, and you rely on the laws of wherever it is based, which may be unclear, far away or weak. Using an unlicensed exchange does not guarantee something will go wrong, but it leaves you with very few options if something does.
Darren's first option, the big international exchange, is the kind of overseas exchange that may have no Singapore licence. His choice is clearer now, but there is still work to do. He wants to know the legal entity behind each app and what the directory says about it. That is exactly what you will do next, for two exchanges you have heard of.
Look up two exchanges you have heard of in the MAS Financial Institutions Directory. Write down each one's licence type and legal entity.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).