Monday, January 24

Singapore’s cautious crypto embrace leaves top mogul in the cold

Binance Holdings CEO Changpeng Zhao was putting on a brave face.

A subsidiary of the world’s largest cryptocurrency exchange had just withdrawn its application to operate an exchange in Singapore. Zhao, the richest cryptocurrency person with a fortune of around $ 90 billion, took to Twitter to say that the affiliate’s investment in another exchange, one that was regulated, made the app “somewhat redundant.”

It turns out that the other exchange has a license to trade some things, like shares in private companies and tokenized assets, but not cryptocurrencies. More importantly, the real reason for the withdrawal was that the Binance affiliate failed to meet Singapore’s criteria for protection against money laundering and terrorist financing, a person familiar with the matter said after it happened last month. Binance denies this and says it pulled the app for strategic and business reasons.

Binance is just the biggest player among dozens of companies that were welcomed and later disillusioned with Singapore’s dual approach to crypto policy. On the one hand, the city-state embraces cryptocurrency technologies and has launched a framework to regulate the industry when other countries like China have opted for outright bans. On the other hand, he doesn’t want his people to burn with speculation, he is wary of criminal risks, and he is extremely picky about the people he lets in.

“There is a very clear line drawn in the sand,” said Lena Ng, a partner at Clifford Chance who advises crypto players in Singapore and internationally.

The cryptocurrency industry is attracting the attention of regulators around the world, with US Securities and Exchange Commission Chairman Gary Gensler calling it the “Wild West” and saying it needs more oversight. . The Singapore example shows that the regulatory process will not always be easy for the companies involved, even when states express openness to concepts and technologies.

Ravi Menon, managing director of the Monetary Authority of Singapore, the central bank and financial regulator, laid out Singapore’s approach in an interview with Bloomberg in October. The city-state sees promise in areas like decentralization, smart contracts and encryption, and wants to be well positioned if they become an integral part of our economies, he said. But there are also “serious risks,” he said, giving examples of money laundering and terrorist financing.

Ravi Menon, Managing Director of the Monetary Authority of Singapore.

“It could lead nowhere, or it could lead to a lot of risk and confusion, or it could lead to a very good outcome for the economy and society,” Menon said of the crypto phenomenon. “We have to look at it in terms of scenarios and prepare for any of those outcomes.”

Singapore’s Payment Services Act came into effect in January 2020 and provides a framework to regulate areas ranging from Bitcoin trading to the use of tokens for payments. Under the law, MAS grants so-called digital payment token licenses to crypto companies that pass the application process.

The introduction of the law helped speed up the entry of crypto players into the Southeast Asian city., the world’s fourth-largest cryptocurrency exchange, moved its headquarters from Hong Kong in 2021 and is seeking a license. A subsidiary of Huobi Group, which operated China’s largest crypto exchange before last year’s blanket ban, is also applying, and its co-founder Du Jun has spent the past two years in Singapore. Binance’s Zhao, for that matter, had also been based in the city-state for the past two years.

In all, some 170 companies showed up, including Coinbase Global Inc., the exchange that went public in the US last year at a historic moment for the cryptocurrency industry. Gemini Trust, the exchange founded by Tyler and Cameron Winklevoss, is also among the applicants. Companies that have applied can operate in the city under a grace period until the regulator says otherwise or they withdraw.

But about 100 applicants have already withdrawn or been rejected. Most did not meet Singapore’s criteria for preventing illicit flows of funds, a person familiar with the matter said.

In fact, only four are known to have received their licenses, including Independent Reserve, an Australian cryptocurrency exchange, and the brokerage unit of DBS Group Holdings Ltd., Singapore’s largest bank. Another company, local startup Coinhako, said it had received approval in principle.

“We don’t need 160 of them to settle here,” Menon said in the October interview. “Half of them can do it, but with very high standards.”

Singapore is catching a middle ground between the extremes of China, which banned all cryptocurrency transactions in September and promised to stop illegal crypto mining, and El Salvador, which adopted Bitcoin as legal tender that same month.

It is an approach that has similarities to other Asian financial centers.

Hong Kong, Singapore’s main rival as the main financial center in the region, uses a regulatory regime called “opt-in” for cryptocurrency exchanges, meaning they can apply to be regulated. You have approved a company. Authorities are in the process of passing laws to enable a new licensing regime.

Japan had recognized 15 companies as cryptocurrency exchange operators since 2017, making it one of the pioneers of crypto regulation. As of December, it had licensed 30 of those companies.

South Korea had accepted registrations from 24 crypto exchanges to operate in the country as of December 23. Only four of them can provide business services in Korean won.

A billboard in Singapore on November 29, 2021. Photographer: Joyce Koh / Bloomberg

Singapore has advantages for becoming a crypto hub in its low tax regime and lack of a capital gains tax, according to Ulisse Dellorto, the Asia-Pacific head of blockchain analytics firm Chainalysis. The city-state also has an advantage in ease of doing business, strong infrastructure and connectivity, and the fact that it is already a financial center, said Gerald Goh, Singapore co-founder and CEO of Sygnum, which runs a bank of digital assets in Switzerland and an asset manager in the Asian city.

Some 350 companies that focus on blockchain and cryptocurrencies already operate on the island, according to Chia Hock Lai, co-chair of the Blockchain Association Singapore, which promotes blockchain technology. That translates to about 3,500 jobs, based on a median workforce of 10, he said.

But the case of Binance, which generated at least $ 20 billion in revenue last year according to a Bloomberg analysis, suggests that expanding at all costs is not necessarily the priority.

There were already signs that Zhao’s signature was written on the wall in September, when the Singapore regulator added, the group’s main platform, to its Investor Alert List of unregulated entities that may have been misperceived. as authorized or regulated by MAS. It told Binance Holdings to stop offering regulated services in the city-state, allowing only the Singaporean entity to serve local residents.

Then in December, almost two years after it was applied, Binance withdrew from the process.

“This certainly won’t hurt Singapore’s reputation as a crypto hub,” said Neal Cross, fintech entrepreneur and former chief innovation officer at DBS bank. “To be fair, you can improve it. Crypto is still nascent and has a long way to go before it becomes a major player in our wealth portfolios, but for that to happen, it must happen in a place that is firm but fair. ”

A spokesperson for Binance said that it continues to work closely with partners and government agencies in Singapore to support the growth of blockchain and cryptocurrency initiatives in the country.

Cross said that opening up to cryptocurrencies will pay off because blockchain and decentralized finance are likely to make up a large part of the financial services industry in the future. When asked about the possible downsides, he said there are two.

“One is the failure of such exchanges” and “the losses suffered by family investors as they are not guaranteed by the government,” he said. “Second, cryptocurrencies are notoriously difficult to track and therefore can open up new avenues for money laundering, but I think MAS is aware of this with its current regulation.”

MAS’s Menon has repeatedly said that Singapore does not want its people to speculate in Bitcoin and other volatile cryptocurrencies.

“MAS disapproves of cryptocurrencies or tokens as an investment asset for retail investors,” he said in a December speech. Cryptocurrency prices “are not anchored in any economic fundamentals and are subject to strong speculative changes. Investors in these tokens risk significant losses. ”

Bitcoin, the largest cryptocurrency, more than doubled from early 2021 to a peak in November before falling for the rest of the year. In 2018, it plummeted 74%. The digital token slid less than 0.1% on Wednesday to trade at $ 42,649.75.

People seeking digital investment opportunities must exercise caution and participate “responsibly,” Communications and Information Minister Josephine Teo said on January 11.

Singapore’s desire to protect its public from cryptocurrency trading is echoed in its policy for its two casinos, which have been extremely economically successful, but arose with concerns that its people would be affected by gambling. In response, the government charges a daily entrance fee of S $ 150 ($ 111) for citizens and permanent residents, while foreigners enter free.

Certainly not everyone is positive about Singapore’s crypto strategy.

“When Binance left, it became a statement that Singapore does not welcome the big boys,” said Anndy Lian, president of the BigONE Exchange cryptocurrency exchange. “Many people choose Dubai because they see Singapore as unwelcoming and they don’t know the real reasons behind it.”

Binance itself has made its way to the Middle East, signing a cooperation agreement with the Dubai World Trade Center Authority last month on the emirate’s planned virtual asset ecosystem. It also obtained approval in principle from the Bahrain central bank to be a crypto asset service provider in the kingdom. And it appointed Richard Teng, a high-profile employee who joined Binance’s Singapore affiliate as its CEO in August, as head of the global entity for the Middle East and North Africa.

Meanwhile, in Singapore, a billboard screamed its message in bold at a busy junction on the Orchard Road shopping belt. “Fortune favors the brave,” he declared.

That may be true, or it may also favor the cautious. For Huobi Singapore CEO Edward Chen, the key is getting the perfect match.

“It is important to find the right balance between regulation and risk mitigation while maintaining a competitive advantage,” Chen said.

© 2022 Bloomberg

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