The Monetary Authority of Singapore (MAS) has released a consultation paper, inviting public feedback on its proposed regulatory framework for Digital Token Service Providers (DTSPs).
The framework is designed to ensure compliance with international standards, particularly in relation to anti-money laundering (AML) and countering the financing of terrorism (CFT).
The consultation paper outlines MAS’ proposed approach to licensing and regulating DTSPs.
Under this proposal, DTSPs must apply for a license, and MAS will assess various aspects of the applicant’s business model, financial sustainability, and adherence to international regulatory standards.
MAS intends to adopt a cautious approach to licensing, granting it only to businesses that can demonstrate valid reasons for not operating within Singapore, despite being based there.
The aim is to mitigate the risks associated with such businesses.
MAS’ proposed regulatory amendments
Once licensed, DTSPs will be subject to ongoing compliance requirements.
These include maintaining a minimum capital of S$ 250,000 and adhering to stringent AML/CFT obligations, such as conducting customer due diligence, monitoring transactions, and reporting suspicious activities.
The purpose of these requirements is to address the risks of money laundering and terrorism financing, to which DTSPs may be particularly exposed due to their cross-border operations.
Additionally, the proposed regulatory framework includes guidelines on technology risk management and cybersecurity.
DTSPs must implement comprehensive technology risk management practices to safeguard against system failures and cyber-attacks.
In the event of a major IT security incident, DTSPs will be required to notify MAS within one hour and provide a detailed report on the incident within 14 days.
The framework also outlines the expected standards for customer disclosure and business conduct.
DTSPs must ensure transparent communication with their customers, particularly in relation to the risks associated with digital token services.
To facilitate customer interaction, DTSPs will need to have at least one employee present at their place of business for 10 days each month to address any queries or concerns related to their services or compliance with AML/CFT measures.
The consultation paper further details MAS’ approach to AML/CFT compliance, reporting obligations, and technology risk management.
Under the AML/CFT guidelines, DTSPs will be required to perform customer due diligence and monitor customer activity continuously, particularly in high-risk scenarios.
For technology risk management, MAS proposes specific standards, including limits on system downtime and mandatory cybersecurity measures such as multi-factor authentication.
DTSPs will also need to adhere to strict disclosure requirements, ensuring customers are fully informed about the risks associated with digital tokens.
Moreover, MAS will require DTSPs to accurately represent the scope of their regulation in all communications with customers.
Details on consultation submission
The consultation period will remain open until 4 November 2024. MAS encourages financial industry participants and other interested parties to submit their feedback here.
Unless explicitly requested otherwise, all submissions will be made public.
Once implemented, the regulatory regime will require existing businesses in Singapore offering digital token services outside the island state to either apply for a license or suspend their operations.
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