Government Decision on Cryptocurrency

Mr Lim Biow Chuan asked the Prime Minister whether any action is being considered to ban the trading of bitcoin currency or cryptocurrency and what measures will be taken to protect consumers against making losses from investing in unregulated currency.

Miss Cheng Li Hui asked the Prime Minister (a) whether plans are in the pipeline to further educate investors on the risks of investing in cryptocurrency; (b) whether assessments are done on how a collapse of the cryptocurrency market can affect Singapore; (c) what measures the Ministry has to deal with any such collapse; and (d) whether there are plans to reconsider the setup of a regulatory framework.

Cryptocurrencies are an experiment. The number and different forms of cryptocurrencies are growing internationally. It is too early to say if they will succeed. If some do succeed, their full implications will also not be known for some time.

The Monetary Authority of Singapore (MAS) has been closely studying these developments and the potential risks they pose. As of now, there is no strong case to ban cryptocurrency trading here. But we will be subjecting those involved as intermediaries to our anti-money laundering regulations. And we will keep highlighting to Singaporeans that they could lose their shirts when they invest money in cryptocurrencies.

There are two main uses of cryptocurrencies today. The first is as a means of payment. The second, which has become far more prominent, is where cryptocurrencies are assets in their own right. People are trading in them in the hope of making a profit.

In both these uses, the underlying technologies, in the form of blockchains or distributed ledgers, may prove to have potentially useful applications in facilitating payments and trade settlements. MAS has, for this reason, been involved in and encouraging a number of blockchain experiments with the financial industry.

However, there are significant risks in the use of cryptocurrencies. There is a clear risk of money laundering. And there is a clear risk that people will lose a lot of their money by investing in cryptocurrencies. We are addressing both these risks.

First, money laundering and terrorist financing risks. Cryptocurrency transactions are anonymous. Given also the decentralised systems behind cryptocurrency payments, and the speed at which they can be performed, they can be used to conceal the illicit movement of funds. In fact, today, a significant portion of bitcoin transactions globally is suspected to be for illicit purposes.

MAS will be imposing anti-money laundering and countering the financing of terrorism (AML/CFT) requirements on the intermediaries that buy, sell or exchange virtual currencies. We set out this AML/CFT regulatory framework for virtual currency intermediaries last year as part of our public consultation on the proposed Payment Services Bill.

In the meantime, there are general safeguards that are in place against AML/CFT risks. Our enforcement agencies are on the lookout for illegal activities related to cryptocurrency trading. Everyone is required under the law to report suspicious transactions which they come across in the course of their trade, profession, business or employment to the Suspicious Transaction Reporting Office (STRO) in the Commercial Affairs Department (CAD). All suspicious transaction reports, including those involving cryptocurrencies and digital tokens which are commonly known as initial coin offerings, are analysed by STRO. Where there are indications of an offence, STRO will refer the matter to the enforcement agencies, such as the Inland Revenue Authority of Singapore for possible tax crimes, and the CAD for possible money laundering.

The second priority is to help people be aware of the risks of putting their money in cryptocurrencies. Cryptocurrencies, such as bitcoins, are a very high-risk investment, subject to sharp swings in prices driven by speculation. They are also mainly traded on opaque markets, with no regulatory protection for investors.

The big fall in bitcoin prices in recent weeks illustrates the risk. But people must also beware of the marketing pitch by operators encouraging them to put more money into cryptocurrencies when prices fall, in the hope of making money if prices surge again. It is, in fact, an inherently unstable, high-risk game.

MAS has issued advisories to warn members of the public of the risks of investing in cryptocurrencies. We will continue to work with the media to highlight these risks. When dealing with entities located outside Singapore, there is also greater risk of fraud, as it is more difficult to verify their authenticity or credibility.

For now, the nature and scale of cryptocurrency trading in Singapore does not pose risks to the safety and integrity of our financial system. Its use in making payments is small, and trading volumes of cryptocurrencies in Singapore are also not high – they are much smaller than in countries like the United States (US), Japan and South Korea. Further, connections between cryptocurrency trading and Singapore’s financial system are also not significant at present. Singapore’s banking system does not have any significant exposure to global and local entities dealing in cryptocurrencies. We, hence, do not have broader, systemic risk concerns with regard to cryptocurrencies.

That said, the cryptocurrency space is rapidly changing and regulatory thinking internationally is still evolving, including in the US, the United Kingdom and Europe. MAS is watching these developments closely and is part of the regulatory discussions internationally on how the risks posed by cryptocurrencies are best addressed.

We will continue to encourage experiments in the blockchain space that may involve the use of cryptocurrencies, because some of these innovations could turn out to be economically or socially useful. But equally, we will stay alert to new risks.