Singapore's ICO gamble
By Risen Jayaseelan October 12, 2018
- Supportive ICO stance reflective of government's desire to embrace innovation, reinforce financial hub status
- Move does pose some reputational risk to island nation, considering risky nature of cryptocurrency market
GOING by some statistics, Singapore is the world’s top destination for initial coin offerings (ICOs) today.
For example, ICOstock24 lists Singapore as having 40 live ICOs today, the highest in the world. Second place is the UK with 39.
ICO Watchlistputs Singapore down as having had the third most number of ICOs undertaken with slightly over 8% of total ICOs.
In total, US$340.6mil has been raised from ICOs on the island nation, according to ICO Watchlist.
What is catalysing Singapore’s attractiveness as an ICO destination is the guidelinesthat the Monetary Authority of Singapore (MAS) published last November.
In it, MAS had taken the bold move of determining that ‘utility tokens’ can be deemed unregulated in the sense that they are not securities.
Recall that the crux of regulating ICOs the world over is whether these token sales are to be treated as security offerings, which in turn mean the ICO process is breaching those laws.
This is the strict stance taken by the US Securities and Exchange Commission (SEC), which in turn has galvanised the market toward security token offerings or STOs.
STOs are token sales following existing securities rules which place limits such as only allowing accredited investors to participate; limiting the entry of non-accredited investors; requiring strict know your customer (KYC) and anti money laundering (AML) or terrorism financing provisions to be in place. There are also rigorous disclosure filings to be made.
Hence conducting an STO is more painstaking process, which requires expert platforms to help you through the process. At present, fully-functioning exchanges that will trade STOs are still only being built.
But what the STO process ensures is that it is unlikely to attract the less serious players and the outright scammers into the space.
In Asia though, ICOs are still alive and kicking. Following Singapore’s guidelines, the Philippines and Thailand have also published some rules on ICOs. Malaysia’s regulator in contrast has yet to issue any guidelines and remains un-accommodative to ICOs, preferring start ups to use existing crowd-funding platforms to raise funds.
However, it is Singapore, with the backdrop of being a global financial hub and its highly-rated legal system and workforce, that is attracting more of the ICO participants.
Considering the risks associated with the crypto world, why is Singapore going down this route and how is it protecting its domestic market from the vagaries of the crypto world?
Recall that it was only two years ago, when a few Singaporean accredited investors lost their shirts after buying into bonds of companies like Swiber Holdings, the oil and gas outfit that went under from the oil price route.
On the “why” question, the answer is likely this: Singapore strives to embrace innovation, especially in the area of finance, which is the bedrock of its economy. It’s move to attract blockchain projects into the country also creates jobs, fills up office spaces and brings in tax dollars.
As to how local investors are protected, there could be a silent hand at work. A check on a number of white papers of ICO projects based in Singapore reveal that the token sales are not being offered to local Singaporeans.
It is yet unclear if this is imposed by the Singapore regulator or by the projects themselves in order to get out of the radar of MAS.
More realistically, it could be linked to tax concerns, considering that Singapore imposes a 17% corporate tax on income derived from Singapore and even foreign sourced income coming into the country. (Many Singapore-based projects are likely to place their fundraising accounts in offshore tax haven jurisdictions).
Furthermore, just this week, MAS’ managing director Ravi Menon said that there are limits to areas of the economy that MAS should supervise.
Speaking to Bloomberg, the article quoted him saying this: “You and I can invest in lots of very silly and dubious things. You can’t expect the government or the regulator to regulate all manner of items in which people put their money.”
However, considering the risky nature of ICOs and the potential fall out of investors losing their money do pose some level of ‘reputational’ risks to Singapore.
This is more so, considering the move towards STOs in the US and elsewhere, which afford better protection to investors. Bans on ICOs remain in countries like China and South Korea.
Notably, one key determinant that the US SEC uses in determining if a token offering is a security is whether a secondary offering of those tokens is being created.
In other words, if the so called utility tokens are going to get listed on a crypto exchange, than going by the speech by William Hinman, a director of the SEC, those tokens should be deemed as securities.
Singapore has not taken that stance yet and it is left to be seen if that will change.
Risen is an experienced financial journalist with a career spanning two decades in print journalism. This includes leading financial publications Financial Time’s Investors Chronicle (UK), The Edge Weekly (Malaysia), and Star Biz (Malaysia). Enthralled by the fintech revolution, he recently completed a short course on ﬁntech from the Massachusetts Institute of Technology (MIT) and has founded CryptoNewsAsia, which aims to capture Asia’s blockchain journey.