The Singapore-based cryptocurrency hedge fund Three Arrows Capital (3AC) was ordered into liquidation in late June after losing more than $3 billion over 2021 and 2022, making its collapse one of the largest hedge-fund trading losses of all time. The collapse may have shaken Singapore’s burgeoning cryptocurrency sector, but lawyers say that tighter scrutiny of the industry from the city-state’s authorities will ensure its sustainable growth.
HOW WILL THE 3AC COLLAPSE IMPACT SINGAPORE’S APPROACH TO CRYPTOCURRENCY?
The collapse of 3AC may have appeared suddenly, but it came on the back of growing risks. For example, in the highly fluctuating crypto market, 3AC bets on the continuous rise in the price of digital coins. Also, in an industry where its sustainability is largely relying on transparency, 3AC borrowed from the biggest crypto lenders without disclosing much about its finances. The collapse brought these risks into the spotlight, and also vindicated Singapore’s prudent approach to crypto, say lawyers.
“I don’t think it’s going to lead to any significant changes in Singapore’s approach – which is to be a global crypto hub encouraging innovation, but in a responsible way with strong risk management capabilities,” says Chua Tju Liang, a director at Drew & Napier. “In this case, the fact that 3AC was a registered fund management firm in Singapore reinforces the correctness of this approach. MAS has also reprimanded 3AC for exceeding the AUM threshold allowed for an RFMC.”
Chua adds that Singapore’s regulatory approach is to control the underlying nature rather than as a single class of crypto. “This approach allows MAS to adopt regulations with a risk-focused approach, rather than a single-broad brush for all the different “crypto-assets” with different risk profiles,” he says.
WHAT SHOULD CRYPTO-RELATED COMPANIES EXPECT IN SINGAPORE?
Despite an encouraging attitude towards the development of crypto-related services, Singapore’s regulators have passed laws that will require crypto businesses based in the city-state but only doing business overseas to be licensed, issued guidelines to limit crypto ads in public spaces and media, and also been careful in issuing licenses. Facing these, crypto players are looking for more clarity on what to expect.
But this cautious approach to crypto is in line with those of other jurisdictions, says Etelka Bogardi, Asia head of the global payments and FinTech practice at Norton Rose Fulbright. She notes that regulations around cryptocurrencies and associated services are evolving rapidly internationally. In particular, lines are being increasingly drawn between services offered to wholesale clients versus retail clients, with the latter group being subject to regulators’ concern around consumer protection issues, particularly given the volatile nature of the crypto market.
“Similarly, cross-border provision of financial services is generally subject to regulations, and we frequently advise clients on the application of the regulatory perimeter for various jurisdictions. The same analysis is increasingly done in the crypto space,” says Bogardi. “The proposed amendments to the Singapore’s Payment Services Act, to, for instance, expand the licensable digital payment token (DPT) related services (from the currently caught exchanges and dealing activities providers to capture the transfer of DPTs, custodial wallet services and the facilitation of the exchange of DPTs without possession of crypto/fiat) also reflect the development of FATF standards in this space.”
Many of Chua’s clients are crypto innovators who are seeking greater clarity in the legal environment applicable to them. He believes that Singapore’s approach “is a boon, and not a bane” for them.
“We will advise them on the laws in Singapore that have been passed and which is in force, like the Payment Services Act, as well as anticipated changes, such as the Payment Services (Amendment) Act and the Financial Services and Markets Act (which have largely not yet come into force). That provides legal certainty to them and their partners, so that they can properly structure their businesses and projects,” Chua says.
IN WHAT WAYS COULD SINGAPORE’S CRYPTO FRAMEWORK IMPROVE?
With the crypto industry being a global one, different jurisdictions have different rules matching the varied development stages of crypto companies. What is appealing about Singapore’s approach, according to Chua, is that as long as the activities fall within the scope of the regulations, then such activities are regulated activities, and more crucially, there is a path to the companies being properly licensed to conduct those activities.
On the other hand, Chua also points out that the licensing regime in Singapore has a bit of a bottleneck in terms of the time taken to get licences issued, compared to other jurisdictions.
“There are players who are interested in getting licences here, but Singapore is losing out to other jurisdictions such as Dubai who are able to issue licences quicker. Indeed, FTX, Binance, Crypto.com and Bybit have also moved their operations to Dubai from Singapore. Once these major players have relocated, it may be difficult to lure them back to Singapore since the competitive edge that is a crypto licence is lost,” Chua says.
