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Monetary Authority of Singapore sets forth regulatory stance on virtual currency intermediaries, hinting at the nation’s acceptance of Bitcoin as a viable tender
How to regulate the unregulatable, that is the conundrum.
Amid the continual attempts by various governmental departments worldwide during recent times to place controls on the usage, trading and flow of virtual currency which has largely amounted to very little success, Singapore’s national financial regulatory authority arrived at the end of last week with an official set of rulings relating to how it will regulate virtual currency intermediaries.
The Monetary Authority of Singapore (MAS) stated categorically on its website at the end of last week that it will regulate virtual currency intermediaries in Singapore to address potential money laundering and terrorist financing (ML/TF) risks.
An interesting move, giving rise to the notion that Singapore, a highly organized nation with a strong financial markets economy, as well as being an institutional FX powerhouse, has not sought to outlaw such practices in order to mitigate money laundering possibilities, but instead regulate such intermediaries.
Indeed, during 2013, many high profile closures were made on the basis of government departments’ fears over illicit trade, such as the closure of anonymous bitcoin market place Silk Road, as well as the voluntary demise of Litecoin market place Atlantis.
As the values of bitcoin have surged and demand has increased, governments from China to Argentina, concerned about circumnavigation by citizens of capital control regulations, have attempted to stem the use of the virtual currency to the extent of attempting to outlaw it, largely to no avail.
Exchanges have been under fire too, with Bitfloor having closed last year, and the very recent sinking of Mt.Gox, which although does not represent any underhand activity, leaves investors without any recourse with regard to regaining their invested funds.
Singaporean authorities consider that virtual currency transactions, given their anonymous nature, are particularly vulnerable to ML/TF risks. To address this, MAS will introduce regulations to require virtual currency intermediaries that buy, sell or facilitate the exchange of virtual currencies for real currencies to verify the identities of their customers and report suspicious transactions to the Suspicious Transaction Reporting Office.
The requirements will be similar to those imposed on money changers and remittance businesses who undertake cash transactions.
Singapore, like most jurisdictions, does not regulate virtual currencies per se, as these are not considered as securities or legal tender. MAS’ regulation of virtual currency intermediaries pertains specifically to the money laundering and terrorist financing risks they pose.
It does not extend to the safety and soundness of virtual currency intermediaries nor the proper functioning of virtual currency transactions. Investors in virtual currencies will not have the safeguards that investors in securities enjoy under the Securities and Futures Act and the Financial Advisers Act.
Therefore, since June 2013, MAS has been cautioning consumers and businesses of the significant risks associated with virtual currency transactions:
The values of virtual currencies can fluctuate greatly within a short period of time. Consumers and businesses may suffer significant monetary losses as a result of the volatile prices.
Virtual currencies may not be issued by any identifiable organisation. Consumers and businesses may not be able to obtain a refund of their monies should virtual currency schemes or intermediaries cease to operate.
With regard to the proposed regulation, Deputy Managing Director of MAS, Mr Ong Chong Tee made a statement last week to the effect that “MAS is taking a targeted regulatory approach to virtual currencies to specifically address money laundering and terrorist financing risks. Consumers and businesses should take note of the broader risks that dealing in virtual currencies entails and should exercise the necessary caution.”
MAS considers that this move will make Singapore one of the first countries in the world to regulate virtual currency intermediaries for ML/TF risks. MAS will continue to monitor closely the development and implications of virtual currencies as well as evolving regulatory approaches taken towards virtual currencies by major jurisdictions. If necessary, MAS will consider additional measures to address the risks posed by virtual currencies and their intermediaries.
An interesting future lies ahead for those in the Asia Pacific region with a penchant for virtual currency, as it could come to pass that one of the most stable economies and coveted electronic trading jurisdictions is not only legitimizing its existence, but also welcoming it.