Enhanced financial services regulatory powers proposed for Singapore

Among other things, the proposed Financial Services and Markets Bill 2022 (FSM Bill) would enhance regulation of virtual asset service providers (VASPs) including cryptocurrency services. The bill aims to complement MAS's existing entity and activity-based regulation and, when enacted into law, will allow MAS to address financial sector-wide risks more effectively.

MAS said in a statement that the FSM Bill would give it expanded powers to issue prohibition orders to prohibit any person who is not fit and proper from engaging in any activity regulated by MAS and performing a prescribed list of key roles and functions in the financial sector. This enhanced ability to issue prohibition orders will enable MAS to take a consistent sector-wide approach when taking enforcement action against misconduct. Consequentially, this will also broaden the categories of individuals who may be subject to prohibition orders as the grounds for issuing prohibition orders will evolve from a list of specific criteria into a single fit and proper test.

Another aspect of the FSM Bill is that it will enhance the regulation of virtual asset service providers, including those targeting money laundering and terrorist financing risks with digital payment tokens.

The bill would regulate all VASPs created in Singapore that provide virtual asset services outside of Singapore. These VASPs offering digital token (DT) services outside of Singapore would be regulated as a new class of financial institution with licensing and ongoing requirements to ensure that the MAS has adequate supervisory oversight over them.

Mark Tan of Pinsent Masons MPillay, the Singapore joint law venture between MPillay and Pinsent Masons, said: “The omnibus bill, when enacted, will likely have considerable impact and consequences for financial services firms operating in Singapore and in particular for virtual asset service providers.” 

“It appears that the view being taken is that transactions relating to digital token services will be considered to carry higher inherent money laundering and terrorist financing risks, due to their anonymity and speed of transacting in such digital tokens. In this regard, it is likely to be important for financial institutions, financial service providers as well as any other affected business institutions to understand how this new omnibus bill if passed is likely to affect them, and to consider what steps they may need to undertake ensure compliance in this regard,” he said.

The FSM Bill would align the definition of regulated DT services to the enhanced Financial Action Task Force (FATF) standards. These include dealing in DTs; facilitating the exchange of DTs; inducing or attempting to induce any person to enter into or offer to enter into any agreement for or with a view to purchase or sell any DTs in exchange for any money or any other DTs regardless of whether they are of the same or different type; accepting DTs for the purposes of transmitting or arranging for the transmission of DTs; and the provision of related financial advice.

Other new powers included in the FSM Bill would allow MAS to impose technology risk management requirements on financial institutions. The regulator has proposed a maximum penalty of S$1 million (US$0.7m) for regulatory breaches.

The legislation would also provide statutory protection from liability for mediators, adjudicators and employees of approved dispute resolution schemes, provided that they “act with reasonable care and in good faith”.

MAS conducted a public consultation on the proposed FSM Bill in January 2020 and noted that the respondents were generally supportive of the proposals.