There are no specific regulations or restrictions targeting NFTs in Singapore as yet. In addition, Singapore adopts a fairly open policy towards foreign investments, with restrictions applicable only in sectors considered critical to national security (e.g., telecommunication services, news and media broadcasting, financial services, professional services and property ownership). Since NFTs are yet another implementation of blockchain technology, albeit a relatively new one, the Singapore government has clarified that NFTs would be subject to existing regulations applicable to the underlying asset represented by the NFT.
At the moment, NFTs are generally used to tokenize artistic works and digital collectible items. Areas of law which may be applicable in transactions involving NFTs would likely include tax law, contract law, property law[1] and intellectual property law, and restrictions on foreign investments would likely not apply.
If the underlying assets represented by a NFT fall within any one of the three classes of capital markets products (i.e., securities, units in a collective investment scheme, or derivatives contracts), the NFT would be subject to the regulatory regime for securities under the Securities and Futures Act. For example, there would be licensing requirements for companies that deal in such NFTs and requirements for prospectus in the offering of such NFTs.[2]
Furthermore, if the NFT is utilized as a payment token, the NFT would be subject to the regulatory regime under the Payment Services Act 2019. For example, if the NFT is utilized as a payment token, there would be licensing requirements for companies that provide the following services even if the moneys are not necessarily accepted or received in Singapore: (1) dealing in the NFT; (2) operating an exchange for the NFT; (3) transferring of the NFT; (4) providing custodial services for the NFT; and (5) facilitating the exchange of the NFT without possession of money or payment tokens. In addition, there would be disclosure requirements to address money laundering and terrorism financing risks.
Singapore has recently passed the Financial Services and Markets Bill, which will come into force shortly.[3] This new legislation is introduced to align with the enhanced standards adopted by the Financial Action Task Force in June 2019, which seeks to mitigate the risk of regulatory arbitrage by virtual asset service providers. Under the new legislation, any person or company in Singapore that provides digital token services overseas (e.g., a company incorporated in Singapore providing digital token services in the U.S.) would have to be licensed or registered in Singapore, and be subject to licensing and ongoing requirements to ensure that the Monetary Authority of Singapore has adequate supervisory oversight over them. Digital tokens include: (1) a digital payment token; or (2) a digital representation of a capital markets product. Regulated services include, among others: (i) dealing in digital tokens; (ii) facilitating the exchange of digital tokens; (iii) transferring and transmitting digital tokens; (iv) safeguarding of digital tokens; and (v) providing advisory or research analysis relating to the sale of digital tokens.
Following the collapse of the multibillion dollar cryptocurrency hedge fund Three Arrows Capital, the Monetary Authority of Singapore has (1) reprimanded Three Arrows Capital for providing false information and exceeding the assets under management threshold allowed for a registered fund management company, and (2) issued a statement signaling that it would clampdown on any ‘bad behavior’ from cryptocurrency industry participants. Coupled with the collapse of other cryptocurrency platforms such as Zipmex, Vauld and Holdnaught, we expect increased regulatory scrutiny by the Monetary Authority of Singapore on crypto and digital assets, such as NFTs.
[1] The Singapore courts have recently accepted cryptocurrencies as a form of property, and would likely treat NFTs as property. In a recent case, it was determined that stolen NFTs were capable of giving rise to proprietary rights which could be protected via a proprietary injunction.
[2] Monetary Authority of Singapore: Reply to parliamentary question on regulation of NFT activities
[3] The Financial Services and Markets Bill was passed on 5 April 2022 and will come into operation on a date that the Minister appoints by notification in the Gazette.