Legal Issues and Trends in the Singapore Crypto Scene | Morgana Lewis

Singapore has become a popular destination for new and existing cryptocurrency funds, just in time for the perceived imminent “crypto winter”. This LawFlash highlights trends and legal issues that companies should be aware of when looking to establish cryptocurrency funds or businesses or use digital assets in this area.


The Variable Capital Company (VCC) is a relatively new and currently popular corporate structure for investment funds in Singapore. A VCC can operate as a single stand-alone fund or as an umbrella fund with multiple sub-funds, each with different investment strategies and a separate portfolio of assets and liabilities.

Another popular fund vehicle is the Partnership limit, which consists of a limited partnership agreement between at least one general partner (GP) and one limited partner (LP). The GPs are the entities that manage the fund and the LPs are the investors. The Limited Partnerships Act of Singapore (LPA) 2008 governs the formation of limited partnerships.

Funds structured as Limited Liability Companies in Singapore are incorporated under the Companies Act of 1967 of Singapore (Companies Act), where investors subscribe for shares in the fund company and become shareholders. If a fund is structured as a company in Singapore, it generally takes the form of a private company limited by shares. However, the limited liability company is a less used structure for Singapore-domiciled funds today.


Beginning with the general decline in cryptocurrency prices and accelerated by the Terra/Luna saga, the estimated global market capitalization of crypto-assets has fallen from $3 trillion to less than $1 trillion over the past seven month. The erasure of over $2 trillion in value has put tremendous pressure on cryptocurrency exchanges and trading platforms. These exchanges are not only platforms and marketplaces for cryptocurrency trading, but also serve as both borrowers and lenders to individuals or other exchanges in what used to be an industry of booming decentralized finance (DeFi). The interconnectedness of cryptocurrency exchanges due to their DeFi role through interconnected borrowing and lending arrangements has made some exchanges susceptible to counterparty risk and margin calls by other exchanges.

The capabilities of exchanges to manage these risks, which include (1) the ability to mitigate counterparty risk; (2) the ability to manage customer transactions and withdrawals; (3) the ability to coordinate the same in different regulatory environments; and (4) the ability to raise fresh capital in a rising interest rate environment, will determine the success of these companies weathering the “crypto winter.”

Attention has therefore turned to the various terms and conditions that govern the relationship between exchanges and their clients/counterparties. If the terms and conditions of an exchange allow the exchange to treat the assets under safekeeping as its own assets to be treated as such, and thus treat the custodial relationship as a debtor-creditor relationship between the exchange/custodian and the client (rather than a warrant or title bond), the clients would simply be general unsecured creditors of the exchange, entitled only to a proportionate distribution of the residual assets of the exchange after all creditors guaranteed or priority have been reimbursed in the event of insolvency. Even if the assets were ultimately deemed to be the property of the clients, the clients would still experience a prolonged interruption in their access to their assets.

Related to this is whether the terms and conditions provide for the ability of the exchange/custodian to lend or provide security over crypto-assets to or for third parties, and the precise terms for that. Another increasingly highlighted issue is the interoperability of these contract terms when users or clients switch between different accounts or sub-portfolios within an exchange’s digital user interface, particularly if the exchange /the custodian can actually mix the client’s holdings with those of other clients, or even their own, in a single crypto wallet controlled solely by the exchange.


As crypto-related investments become more prevalent, those profiting from the sale of digital tokens should be aware of the potential tax liability that may arise. Although Singapore does not have capital gains tax, there is a common misconception that such gains should be exempt from tax. The burden of income tax in Singapore is underpinned by the income/capital distinction, where only income-like gains are taxable in Singapore. However, a capital gain does not necessarily mean that it will be treated as a capital gain (and therefore not taxable). Relevant factors such as intent or purpose, length of holding, and frequency of trading are usually considered, and it is not just those trading digital tokens who will be taxed on profits. Ultimately, it depends on the facts and circumstances of each case.

More and more employers are also considering the use of digital tokens (e.g. Bitcoins) as compensation for employment. A practical consideration at the outset is whether compensation should be bounded by a fixed amount that is payable in digital tokens, or a fixed number of digital tokens that fluctuate in value over time. Generally, payments using digital tokens with a moratorium period will not be taxed until it is lifted. It should also be noted that the tax treatment of one digital token may differ from another depending on its nature and use.


In Singapore, the type of regulations that apply to crypto businesses (and if they apply at all) and whether such businesses need to be licensed, depends on the intended business activities and the type of crypto-assets involved. Crypto products and services come in many forms and are constantly evolving, and there is no “crypto license” that applies universally. Different pieces of legislation may apply to different cryptographic products and services, depending on the scope of the product or service being offered. Therefore, the specific regulatory authority that regulates the activities of the crypto product or service will vary depending on the scope of the product or service. For example, companies that:

  • dealing in or offering digital exchange or custody services for digital tokens which are deemed to be securities must be licensed (or exempt from licensing) under the Singapore Securities and Futures Act 2001 and may be subject the prospectus requirements of this law if offering/selling these securities;
  • offer financial advisory services relating to various types of crypto-assets which may require a license (or license exemption) under the Singapore Financial Advisors Act 2001;
  • offer services related to digital payments (including digital payment tokens or emoney), or offer payment system services, must be licensed (or exempt from licence) under the Payment Services Act 2019 from Singapore; and
  • operating in Singapore are also required to comply with Singapore’s anti-money laundering and anti-terrorist financing laws and regulations.

Even where an act is performed entirely outside Singapore, Singapore’s licensing requirements would still apply if the conduct has a “substantial and reasonably foreseeable” effect in Singapore.

A currently coveted license in Singapore is the primary payment institution license under the Singapore Payment Services Act 2019. This license allows licensees to provide various crypto services on a larger scale in Singapore. The Monetary Authority of Singapore has carefully reviewed the hundreds of applications for such licenses and, as of June 22, a total of only 14 licenses and approvals in principle have been granted to digital payment token service providers (including stablecoin players). , crypto exchanges and traditional financial institutions).

Following the crypto market crash that triggered the insolvency of prominent players in the crypto industry, including companies based here, Singapore is considering more safeguards to protect consumers. These may include limiting the participation of retailers and imposing rules on the use of leverage or borrowed capital in cryptocurrency transactions.

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