INTRODUCTION TO THE LEGAL AND REGULATORY FRAMEWORK
While there is a wide variety of cryptocurrencies and digital tokens with differing characteristics, most cryptocurrencies are a cryptographically secured representation of a token holder’s rights to receive a benefit or to perform specified functions. However, from a legal perspective, it is critical to distinguish between these digital tokens, as the offering of different types of digital tokens may trigger different regulatory considerations. At last count, there appear to be broadly four categories of digital tokens: digital payment tokens, security tokens, utility tokens and asset-backed tokens.
Digital payment tokens
On 21 November 2017, the Monetary Authority of Singapore (MAS) launched a second consultation on its proposed payments regulatory framework. Specifically, MAS issued its Consultation Paper on the Proposed Payment Services Bill. The Payment Services Bill (the Bill) was intended to streamline the regulation of payment services under a single piece of legislation, expand the scope of regulated payment activities to include digital payment token services and other innovations, and calibrate regulation according to the risks posed by these activities. The Bill was passed by Parliament on 14 January 2019 and became the Payment Services Act 2019 (the PS Act). The PS Act is expected to come into force once the regulations supporting the PS Act have been consulted on and finalised.
Under the PS Act, a digital payment token is defined to mean ‘any digital representation of value that (1) is expressed as a unit (2) is not denominated in any fiat currency and is not pegged by its issuer to any fiat currency (3) is or is intended to be accepted by the public or a section of the public as a medium of exchange, to pay for goods or services, or discharge a debt (4) can be transferred, stored or traded electronically and (5) satisfies any other characteristic that MAS may prescribe’. Bitcoin and Ether are examples of digital payment tokens.
Digital payment tokens are not currently regulated, as they are not considered securities or currency.2 MAS has now proposed that where someone deals in digital payment tokens, that person could potentially be construed as providing a digital payment token service under the PS Act, triggering licensing requirements. thelawreviews.co.uk