In 2019, in order to create attractive conditions for the development of the Fintech sector in Singapore, the Payment Services Law was adopted, which consolidated the definition of cryptocurrency (digital payment tokens) and the procedure for its circulation. In addition, this Law established the criteria to distinguish payment tokens from other virtual objects — securities tokens, utility tokens, game currencies. The article analyzes the concept of digital payment tokens as a digital representation of value, considers the rules for making transactions with them. It is concluded that the use of such an approach minimizes difficulties in regulating the turnover of, for example, bitcoins. The main difficulty seems to be that the use of the digital value representation mode in relation to cryptocurrency is associated with the need to either establish an extraterritorial regime of regulation in relation to cryptocurrency exchanges or to adopt an international agreement in this area.
Much of the discussion in the cryptocurrency literature has focused on its role as a competitor to legal tender. Cryptocurrencies are considered by some authors as an alternative to fiat money. Indeed, if we proceed from the prerequisites for the creation of bitcoin, then one can see that it was designed as an alternative to the existing agreements on sovereign currency, it was supposed to become a technological alternative, acting independently of any government. This became possible due to the fact that bitcoin is based on the application of blockchain technology and cryptography in a distributed ledger, which led to the emergence of a decentralized system in which there is no single controller or group of controllers, and all participants are involved in the development and use of the system. The launch of bitcoin in 2009 led to the subsequent development of a number of cryptocurrencies — there are more than 2,000 of them. Therefore, governments and national financial market regulators are taking measures to establish the rules for the functioning of this area.
The Asia-Pacific region is home to 20 of the 50 largest cryptocurrency exchanges, which account for about 40% of all bitcoin transactions.
One of the leading positions in this area is taken by Singapore, where digital technologies are developing quite rapidly.
The main attention in this country is paid to the development of the financial sector. For example, in order to transform Singapore into a global Fintech center, the Monetary Authority of Singapore adopted the concept of a smart financial center as part of the Smart Nation initiative, which provides for the creation of opportunities for better risk management and the development of new financial services in a digital environment.
As a result of the implementation of this policy, the Law on Payment Services was adopted in 2019 in Singapore, and in 2020 the Payment Services Act came into force, which consolidated the concept of cryptocurrency (in the terminology of this Law — payment tokens), and amendments were also made in a number of other regulatory legal acts.
In developing the Law, attention was paid to the creation of mechanisms to prevent the financing of terrorism and money laundering, as well as the protection of unqualified investors. In particular, the Monetary Authority of Singapore has enshrined in clause 11 of the Payment Services Rules a ban on cryptocurrency advertising and regularly publishes clarifications on the use of cryptocurrency exchanges.
Singapore approached the issue of the ratio of money and cryptocurrency by recognizing payment tokens as a unit of account — a digital representation of value. So, according to Art. 2 (1) of the Payment Services Law, a digital payment token is any digital representation of value that is expressed in units, is not denominated in any currency and is not tied by its issuer to any currency; acts as a medium of exchange is accepted by society or a part of society as payment for goods or services or to pay off a debt; may be transmitted, stored or sold electronically; satisfies other characteristics that the Monetary Authority of Singapore may prescribe.
The definition of a payment token is also contained in the Goods and Services Tax Act.
It is identical to the one above, with the exception that for tax purposes, the minister may add a characteristic, change or exclude any characteristic in the subsection of digital payment tokens, both in general and for specific circumstances. This approach, on the one hand, can be considered progressive, since cryptocurrencies are still insufficiently studied, in addition, the appearance of new types of them is possible, which necessitates a quick response to ongoing changes. On the other hand, the legislator actually delegates its powers to formulate the definition of a payment token to other authorities, which can hardly be assessed positively.
Perhaps the most confusing element of the definition of a payment token is that it is accepted by society or a part of society as payment for goods or services or to pay off debt. As noted by Singaporean researcher Lin Lin, the Law on Payment Services does not provide an exhaustive definition of cryptocurrency, but the existing one is very inclusive since it is not clear what constitutes “public acceptance” and how to correctly define “part of the public.”
This, in her opinion, could lead to confusion and uncertainty for those who use virtual currency in the course of their activities, as well as to the risk of being under the regulatory control of the Monetary Authority. In this regard, it would be advisable for the regulatory authorities to prepare a clarification in this regard.
Due to the fact that there are different types of digital tokens, Singapore has made an important clarification in the Payment Services Law. Part 2 of Appendix 1 states that payment tokens that are regulated by the said regulatory legal act do not include any tokens that are issued by any central bank or any person authorized by the central bank to issue such tokens. This is apparently due to the fact that this kind of cryptocurrency has a well-known issuer, which, moreover, cannot issue them without any collateral, because otherwise, it risks undermining the financial stability of the state. In this regard, such cryptocurrencies are essentially nothing more than electronic money or debt securities issued on the basis of blockchain technology.
Another important question that is addressed in the analyzed Law: how to distinguish a cryptocurrency as an object circulated in the financial market from other similar virtual currencies?
For this purpose, the Payment Services Act introduces such a definition as “digital payment token with a limited purpose”. Such digital objects mean tokens that arise as customer rewards for loyalty, any gaming assets, or any similar digital representation of value that cannot be returned to its issuer in exchange for money and can only be used to pay for goods or services or to pay or exchange for virtual objects or virtual services in an online game. Art. 2A of the Goods and Services Tax Law also states that a digital payment token is not everything that gives the right to receive or the right to direct the supply of goods or services from a specific person or persons and ceases to function as a medium of exchange after the use of the right.
According to Art. 6 (4) of the Payment Services Act, cryptocurrency transactions are subject to licensing, and the person performing them must obtain a standard payment institution license or a license from a major payment institution. The Law emphasizes that transactions include not only the purchase and sale of digital payment tokens for money on a cryptocurrency exchange but also their exchange for other digital payment tokens*.
- A digital payment token exchange in the Law means a place or object (electronic or otherwise) where offers or invitations to buy or sell any digital payment token in exchange for any money or any other digital payment token (of the same or different type) are regularly made centrally. These offers or invitations are intended or reasonably expected to lead (directly or indirectly) to the acceptance of these offers or the creation of offers to buy or sell digital payment tokens in exchange for money or other digital payment tokens (of the same or different type).
At the same time, part 3 of Appendix 1 to the analyzed Law stipulates that licensed activities do not include the acceptance of any digital payment token as a means of payment for the provision of goods or services; using any digital payment token as a means of payment for the provision of goods or services.
So, the considered approach of the Singapore legislator to delimit cryptocurrency from other digital tokens and game currencies seems to be noteworthy, since it allows you to form a clear idea of what is definitely not a cryptocurrency. Therefore, when constructing a Russian regulatory legal act relating to cryptocurrency, one should rely on these criteria.
As noted in the literature, the Monetary Authority of Singapore strives to find a balance between protecting investors and encouraging innovation in the crypto asset space.
This is largely due to the recognition of cryptocurrency transactions as a licensed financial service. Giving a certain legal status to cryptocurrency allows you to bring its market into a legal field, and therefore, protect its owners, thereby ensuring the maintenance of investment activity and innovation in Singapore.
At the same time, some authors criticize the Payment Services Act. Thus, the Singaporean researcher Jonas Ko notes that the legislation concerning cryptocurrency, when it comes to such complex cryptocurrencies as Jocoin, is ineffective, since, in his opinion, not only the Payment Services Act can be applied to the latter, but also legislation on the securities market and other laws, especially if the cryptocurrency has collateral in the form of any commodity.
According to this author, the application of the Howie test allows digital payment tokens to be recognized as securities. Therefore, the solution to the problem of complex cryptocurrencies can be achieved through the implementation of the provisions of US securities legislation in the field of cryptocurrencies and the introduction of appropriate amendments to the Singapore Securities and Futures Act.
Another argument against the Payment Services Act is that users of cryptocurrency are provided with protection in accordance with the legislation on securities since it requires issuers to disclose information.
The cited criticism, however, does not seem to be fully justified, since it does not take into account that bitcoin has no issuer, which means that the rules regarding securities cannot be applied to it. Therefore, the approach according to which Singapore allocates digital payment tokens, which are considered as a representation of value, as well as other digital tokens, including those that fall within the scope of the Securities and Futures Law, still seems to be correct.
Of course, Singapore’s Payment Services Act is not without its drawbacks, but the way it draws the line between payment tokens and other tokens should be used in rulemaking. The main difficulty seems to be that the use of the digital value representation mode in relation to cryptocurrency is associated with the need to either establish an extraterritorial regime of regulation in relation to cryptocurrency exchanges or to adopt an international agreement in this area.