One of the needling issues in the cryptocurrency industry is the classification of the ICOs and how it needs to be regulated.
In response to this, the Monetary Authority of Singapore (MAS), has said that the offer or issue of digital tokens would be regulated by it if the digital tokens constitute products regulated under the Securities and Futures Act (Cap. 289) (SFA).
The digital tokens are issued as part of Initial Coin Offerings (ICOs) as a means of collecting funds from the investors. The investors get the digital tokens in return and in general, the investors are likely to benefit if the tokens gain in value as the product or the company behind the ICO does well.
But increasingly, the regulators have viewed such ICOs with suspicion as they can be easily used for money laundering and also for collecting large sums of money within a short period of time without much tracking or regulation. The MAS has also said that it shares similar concerns and hence looking for means and ways to regulate such risks.
Classification of Digital Tokens as Security
The MAS has also made it clear that it does not want to regulate virtual currencies as such, which is a stand similar to the one taken in most jurisdictions. But with digital tokens being used as part of ICOs, the tokens can be interpreted as a share in the company that issues the token.
This is similar to a security or stock introduced by a company or in certain cases, such tokens may be considered as a loan, and hence the MAS believes that such digital tokens need to be regulated under the SFA.
So, the MAS goes on to add, those tokens that fall under the definition of a security should undergo all the regulations as defined in the SFA and the issuers of such tokens should lodge and register a prospectus with the MAS.
The MAS has said that the issuers of the digital tokens and the intermediaries should take legal opinion on whether their tokens would fall under the category of security or a debenture and ensure that they comply with all applicable laws.
This is similar to the stand taken by the Securities and Exchange Commission (SEC) in the US which seeks to regulate those tokens that come under the definition of a security. This is likely to be the template with which the regulatory authorities in other jurisdictions are likely to view the ICOs and the digital tokens.