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Recently, the Monetary Authority of Singapore (“MAS”) told several digital payment service providers that it is prepared to grant them payment services licenses under the Payment Services Act, 2019 (the “PS Act”).1 In this article, we discuss what it means to receive an “in-principle approval” (“IPA”) from a regulator as well as the status of some material questions relevant to virtual asset service providers (“VASPs”).


What is in-principle approval?
We expect that all successful applicants for licensing under the PS Act will receive an IPA letter from the MAS. The applicant will then have a specified period of time to comply with the conditions set forth in the IPA letter. After all the conditions have been met, the applicant will be awarded the license.2

What conditions are included in an IPA?
The MAS can include any conditions to licensing at its discretion. Licensing conditions may include the applicant meeting the required base capital requirements, an audit of the applicant’s compliance framework or satisfaction of certain hiring or operational requirements.

How long will an applicant have to address the conditions in the IPA? Can an IPA be extended?
The MAS has not stated a standard length of time for PS Act license applicants to comply with the conditions set forth in an IPA letter. In the digital banking space, the MAS grants up to 12 months to comply, and offers extensions on a case-by-case basis.

When will a response be published to the consultation on the Scope of E-Money and Digital Payment Tokens be published?
In December 2019, the MAS published a consultation paper seeking the views on the scope of money, e-money and digital payment tokens, as well as the regulation of payment services based on these forms of payment. Among other questions, the MAS asked whether the definition of e-money and digital payment tokens (“DPTs”) remained appropriate in view of the emerging class of stablecoins. In the event that the definition of a DPT or e-money is amended, this could materially affect a VASP’s operations, including whether it is subject to licensing.

We do not know when the MAS will publish its response to this consultation. In addition, the MAS is likely to implement further regulatory amendments in response to the updated Financial Action Task Force (“FATF”) guidance on the risk-based approach for virtual assets (“VAs”) and VASPs. According to the FATF, “there should not be a case where a relevant financial asset is not covered by the FATF standards (either as a VA or as a traditional financial asset”.

The FATF has presented a series of examples to illustrate activities that should be caught within the current definitions of a VA and VASP. For example, using an automated process such as a smart contract to carry out VASP functions would not release the controlling party from VASP obligations.6 It is likely that Multi-Party Computation service providers may also fall within the definition of a VASP since service providers “who cannot complete transactions without a key held by another party are not disqualified from falling under the definition of a VASP, regardless of the numbers, controlling power and any other properties of the involved.” We therefore anticipate that a broader range of activities that do not currently fall under MAS’ regulatory perimeter will require a license.

When will the Payment Services (Amendment) Act 2021 go into effect?
In early 2021, the Payment Services (Amendment) Act 2021 (the “Amendment Act”) was passed. Key changes included expanding the categories of DPT services to include custody of DPTs and any service of inducing or attempting to induce the purchase or sale of a DPT, as well as expanding the scope of money transfer services.

There is no designated date for the changes included in the Amendment Act to come into force. MAS has indicated its intention to grant an exemption for six (6) months to entities that will be newly regulated under the Amendment Act. MAS also intends to grant an exemption of six (6) months to entities currently licensed under the PS Act who have to vary their licenses.

Can a firm licensed for capital markets services also obtain a license to conduct regulated activities under the PS Act?
Although a capital markets services (“CMS”) licensee is not an exempt entity for purposes of the PS Act, there is no prohibition on such entities applying for a standard or major payment institution license. A few CMS licensees hold standard or major payment institution licenses currently and DBS Vickers recently announced it had received an IPA letter with respect to providing DPT services. Housing both regulated activities under the same entity may offer various operational and financial efficiencies, However, we expect the MAS to have questions about managing conflicts of interest and the fine details of operations controls for applicants applying for both CMS and DPT licenses. As a result, it is likely such dual applications will take longer to approve as compares to a DPT only business model.

What is the status of “travel rule” implementation? Will full travel rule implementation be required in order for a VASP to obtain a license?
The travel rule requires VASPs to exchange and retain certain information related to the beneficiary and originator of a transfer for value. We believe the interoperability of travel rule solutions is the number one issue that VASPs need to overcome. A number of commercial solutions are emerging, however, VASPs may not be able to comply with the travel rule if they have adopted different solutions and no interoperability bridge exists. The MAS has stated that it expects licensed entities to fully comply with the travel rule. However, if more time is needed to implement the value transfer requirement, the DPT service provider is advised to (a) conduct a risk-based analysis, and (b) apply effective risk mitigation measures accordingly.

What is the status of regulating DeFi and NFTs?

Non-fungible tokens (“NFTs”) and de-centralized finance protocols (“DeFi”) continue to pose regulatory challenges.

NFTs present a regulatory challenge because of the AML/CFT risks. NFTs are unique digital assets constructed by computer code and recorded on a blockchain ledger to prove authenticity and ownership. Existing regulations may apply to NFTs depending upon the characteristics of the token or the activities performed in relation to it. However, in most cases NFTs fall outside of the current financial services regulatory framework.

Under the Draft Guidance (expected to be finalized by November 2021), the FATF requires member jurisdictions to adopt a degree of flexibility in the context of VAs and VA activities. The FATF has also stated that some “items – or tokens – that on their face do not appear to constitute VAs may in fact be VAs that enable the transfer or exchange of value or facilitate ML/TF”.11 It is implicit from this guidance that members will be expected to take active steps to ensure that NFTs and NFT trading platforms are not used as a conduit for money laundering. If the final version of the Draft Guidance remains as is on this point, we anticipate that the MAS is likely to introduce measures to specifically address the regulatory treatment of NFT trading platforms. At the time of writing, it is not clear whether such measures would be in the form of guidelines or further amendments to existing legislation.


DeFi presents regulatory challenges because the decentralized mode of operation and absence of centralized intermediaries means that it is difficult to hold any party accountable. According to the Draft Guidance, entities involved with decentralized applications (“DApps”) may be VASPs. The FATF explicitly states that the owner/operator(s) of a DApp are likely to fall under the definition of a VASP and so are the persons who conduct business development for a DApp. Such proposals have, however, been strongly opposed by the DeFi and crypto community, and the FATF is yet to publish its final updated guidance.
We anticipate that the FATF will continue to bring DApp owners within the scope of VASPs. As a result, we believe that the MAS will take steps to bring DeFi under its regulatory purview in line with FATF guidance. However, we do not expect any changes to be announced before November 2021.

What is the significance of some VASP license applications receiving IPA before others? What is the significance of being licensed vs being exempt?

The MAS considers each application on its own merits. While the MAS has published guidelines on licensing for payment service providers, the MAS may take into account other factors on a case-by-case basis.

As a result, while being among the first VASPs to receive an IPA reflects a strong application, it does not necessarily indicate relative strength compared to other VASPs. The date of submission of the application and the complexity of a VASP’s business model are normal factors that may affect processing time.

How can VASPs navigate the regulatory environment in Singapore while keeping their policies and operations consistent across jurisdictions?
Easiest question yet. Holland & Marie’s senior team has extensive experience serving in leadership roles for regional and global financial institutions, including serving as General Counsel, COO and CEO of licensed financial institutions, as well as experience in fintech start-ups, academia and government tribunals. Since you have read this far, we hope you will accept our invitation for a coffee or zoom call to discuss your business and priorities.

If a prolonged conversation discussing compliance sounds awful, fear not. At Holland & Marie, we love compliance so you don’t have to!

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