[GFI] THE IMPACT OF FSMA’S NEW REGULATIONS ON DIGITAL TOKEN SERVICE PROVIDERS (DTSPs)

This panel, The Impact of FSMA’s New Regulations on Digital Token Service Providers (DTSPs), organized by the Global Fintech Institute (GFI), focused on the upcoming implementation of the Financial Services and Markets Act (FSMA) in Singapore, with particular attention to its effects on Digital Token Service Providers (DTSPs). The session began with an introduction to GFI’s mission and certifications, followed by a detailed discussion of the FSMA’s background, scope, and operational implications for industry participants.

Notable Quotes

• “The FSMA is really to harmonize Singapore law with the FATF recommendations in 2019, that VASPs have to be licensed in the jurisdiction where they are created.”
• “MAS has made it clear that the bar for licensing under the FSMA will be set very high, and approvals will be granted only in extremely limited circumstances.”
• “The grass is not exactly greener on the other side; all major jurisdictions are aligned with FATF and have stringent requirements.”
• “If you are serving Singapore resident clients, you are already caught under the Payment Services Act, but here we are talking about serving offshore clients.”
• “Technology risk management, incident notification, and data protection are key focus areas for license applicants.”

Insights and Takeaways

• The FSMA was described as a measure to address regulatory gaps for Singapore-based entities serving non-residents in the digital asset sector.
• The Act’s scope was discussed as being limited to certain types of digital tokens and specific regulated activities.
• The panel noted that there is no transitional exemption for existing businesses, and that licensing requirements are strict.
• MAS’s expectations for risk management, governance, and operational resilience were outlined, with reference to technology risk management guidelines.
• The discussion included comparisons with other jurisdictions and noted that regulatory requirements are stringent globally.
• The panel emphasized the importance of understanding the specific requirements and definitions in the FSMA and related laws.
• The panel highlighted that regulatory clarity and a strong compliance posture can serve as a competitive advantage for businesses operating in the digital asset space.
• The regulatory environment in Singapore is comparable to, and in some respects more prescriptive than, other leading jurisdictions, but offers clarity on what is and is not in scope.
• The panel discussed the importance of ongoing engagement with MAS and careful review of the Act’s definitions and requirements.

Challenges and Debates

• The lack of a transitional exemption was identified as a challenge for existing businesses, requiring them to cease activities and apply for a license by the effective date.
• The panel discussed questions about the scope of the FSMA, including the treatment of holding companies, technical service providers, and employees of foreign entities.
• There was discussion about the risk of regulatory arbitrage and the potential impact on Singapore’s competitiveness.
• The panel addressed practical questions about the application of the FSMA to various business models and activities, including exchanges, custody, and tokenized commodities.
• The need for ongoing engagement with MAS and careful review of the Act’s definitions and requirements was highlighted.
• The panel discussed the perception that Singapore’s requirements are uniquely onerous and contrasted this with the reality of global regulatory trends.
• The panel also discussed the importance of granular, case-by-case analysis of whether specific entities or activities fall within the scope of the FSMA.

Conclusion

The panel provided a detailed discussion of the FSMA’s new regulatory framework for Digital Token Service Providers in Singapore. The session covered the Act’s background, scope, licensing requirements, operational expectations, and comparisons with other jurisdictions. The discussion emphasized the importance of understanding the FSMA’s definitions and requirements, and the need for businesses to review their activities in light of the new rules. The panel also noted that the views expressed were personal and not those of their organizations or GFI. The panel encouraged anyone that has concerns on the FSMA to seek their own legal opinions and not to rely solely on the opinion of the panelists. The event concluded with a reminder that the summary and discussion do not constitute legal advice or represent the opinion of GFI.