On 2 September 2021, the Monetary Authority of Singapore (MAS) placed Binance.com (Binance) on the Investor Alert List. This has garnered the attention of investors as Binance is currently the largest cryptocurrency exchange in the world with a 24-hour trading volume of US$29 billion, more than 5 times that of Coinbase, the second-largest crypto exchange.
The MAS Investor Alert List is a list of unregulated persons (or companies) who may have been wrongly perceived as being licensed or regulated by MAS. For most people, it effectively acts as a list to avoid scams and shady financial institutions. For example, in the recent billion-dollar nickel trading fraud case, the company – Envy Asset Management – was listed on the investor alert list since March 2020.
Naturally, this has drawn investor concern as the Investor Alert List is associated with fraudsters and dubious companies.
Why Is Binance On MAS Investor Alert List?
According to MAS statements to CNA, Binance “may be in breach of the Payment Services Act for carrying on the business of providing payment services to, and soliciting such business from Singapore residents without an appropriate licence”.
Essentially what is happening is that Binance is not licensed or regulated to provide any payment services in Singapore. Binance has also not submitted a licence application or received an exemption for the provision of digital payment token services under the transitional arrangements of the Payment Services Act. Binance is also required to stop providing payment services (which are regulated under the Payment Services Act to Singapore residents and to stop soliciting such business from Singapore residents.
Binance announced on Sunday, 5 September 2021, that it would cease operations on Friday, 10 September 2021, for SGD trading pairs, SGD payment options and remove the app from Singapore iOs and Google Play stores. SGD trading pairs will also be removed from Binance P2P.
Other Overseas Regulators Have Already Issued Warnings Against Binance
For Binance, this news comes in the wake of other regulators who have warned or taken action against Binance. In August 2021, Britain’s Financial Conduct Authority issued a report that said that the “firm (Binance) is not capable of being effectively supervised”. Binance’s UK entity, Binance Markets Ltd, was banned from conducting any regulated activities in the UK in June 2021. Binance faces global pressure as regulators in Japan, Canada and Italy have also warned that it is not authorized to operate in the countries. Malaysia has also ordered Binance to disable its exchange and mobile application in the country as well as halt all media and marketing activities.
Regulators have taken a stern stance against Binance due to concerns about money laundering as well as concerns that it has overstepped into the realm of regulated financial products. For example, its offered “stock tokens” which are digital tokenised versions of stocks, may have violated securities laws according to Germany’s financial regulator BaFin. Binance has since removed its stock token offerings and would not support any stock tokens after 14 October 2021.
Binance.com VS Binance.sg
For investors in Singapore, there may be some confusion between Binance.com (Binance) and Binance.sg (which is operated by Binance Asia Services). Binance Asia Services is a separate legal entity from Binance and holds an exemption for the provision of digital payment token services under the transitional arrangements of the Payment Services Act.
|Operated by Binance||Operated by Binance Asia Services|
|No headquarters in any specific country||Headquartered in Singapore.|
|On MAS Investor Alert List||Not on MAS Investor Alert List|
|Does not hold a licence, submitted a licence application, or received an exemption for provision of digital payment token services under the transitional arrangements of the Payment Services Act||Holds an exemption for provision of digital payment token services under the transitional arrangements of the Payment Services Act|
Users of Binance.sg are still able to transact on Binance.sg as well as make deposits and withdrawals to Singapore bank accounts through Xfers Direct. However, transfers between Binance.com and Binance.sg would likely be suspended as MAS expects Binance.sg to “immediately begin an orderly suspension of its facilitation of transfers of digital payment token assets”.
What Is The Payment Services Act And The MAS Regulations Around Cryptocurrency Exchanges?
The key regulation in question surrounding Binance’s listing on the Investor Alert List is the Payment Services Act. This act governs the regulation of payment systems and payment service providers and provides regulatory certainty and consumer safeguards.
Cryptocurrency exchanges are regulated as digital payment token (DPT) service providers under the Payment Services (PS) Act. This is one of the seven payment services covered by the Act: buying or selling digital payment tokens (“DPTs”) (commonly known as cryptocurrencies), or providing a platform to allow persons to exchange DPTs. According to the MAS’s Parliamentary Answer on Crypto Asset Market (5 April 2021), these DPT providers are regulated primarily for money laundering and terrorism financing risks. However, the Act allows for additional measures to be imposed on DPT service providers as needed.
DPT providers are required to comply with Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) requirements such as obligations to perform customer due diligence and transaction monitoring. They are also required to file suspicious transactions reports with the Commercial Affairs Department (CAD).
Most Of The Cryptocurrency Exchanges Are Currently Operating Under Exemption
As of 4 September 2021, only 3 entities have been received the licence to operate digital payment token services: Independent Reserve – an Australian cryptocurrency exchange platform, DBS Vickers – the brokerage arm of DBS Bank and FOMO Pay – a payment solutions provider.
Other cryptocurrency exchanges operating in Singapore are currently operating under exemption for the provision of DPTs. This exemption clause allows entities that are not licensed under PS Act to continue to provide the regulated payment services under the transitional arrangements of PS Act. Entities that were providing regulated payment services (i.e. cryptocurrency exchange) were given a six-month period after 28 January 2020 to make a licence application or cease their businesses after 28 July 2020. The exemption remains in place for entities that have submitted their licence applications until the application is approved, rejected or withdrawn.
Currently, most of the cryptocurrency exchanges operating in Singapore, including Binance.sg, have submitted their licence applications and are operating under the exemption while pending MAS’s approval.
To apply for MAS Standard Payment Institution Licence or Major Payment Institution Licence (which covers provision of DPT services), the applicant must be a Singapore-incorporated company or foreign corporation registered in Singapore with a permanent place of business or registered office (in addition to other criteria). Based on these criteria, Binance.com would not be able to apply unless it chooses to register the business in Singapore and registers an official headquarters. However, Binance.sg is able to apply for the licence as it is registered and headquartered in Singapore.
MAS Restricts The Amount Of Funds That Can Be Stored In Personal E-Wallets
One of the activity restrictions imposed by the MAS is a cap on the amount of funds that can be stored in personal e-wallets: this is limited to a stock cap of $5,000 and a flow cap of $30,000.
For users of Binance.sg, these numbers would be familiar as they are the holding cap of the Xfers wallet as well as the annual spending limit. This means that if you have more than $30,000 worth of cryptos in Binance (a likely scenario given the huge bull run in cryptos in 2021), you would only be able to withdraw $30,000 a year. You also cannot hold more than $5,000 in your account for transactions. If you want to buy more than $5,000 worth of cryptos, you would have to split them into separate transactions and top-up your wallet each time. This limitation of Binance.sg is a likely factor for Singapore crypto enthusiasts to use Binance.com instead of Binance.sg.
For affected Binance.com users, the step to take would be to start moving your crypto holdings to other exchanges or external hardware wallets and to slowly withdraw your fiat currency profits subject to the caps imposed by MAS. While the advice is often repeated, always do your due diligence before investing. This is even more so important for cryptocurrencies where there is very little regulation.
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