In Depth: Singapore’s ‘Offshore’ Crypto Crackdown Clouds Web3 Future

Singapore's role as a leading international cryptocurrency hub is set for significant changes as the country's central bank, the Monetary Authority of Singapore (MAS), announced stricter oversight of certain Digital Token Service Providers (DTSPs) to combat risks tied to money laundering and terrorism financing. Effective from June 30, 2024, all DTSPs registered in Singapore that serve only overseas customers must obtain a license or cease operations without any transition period, a move MAS says will only allow new licenses in “extremely limited circumstances” [para. 1][para. 2]. The central bank highlighted that DTSPs, due to their cross-border and online nature, present heightened risks of being misused for illicit purposes, which could harm Singapore’s reputation [para. 3].

A DTSP, as defined by the MAS, offers services like issuance, buying, selling, transferring, or safekeeping digital tokens for clients. The new requirements apply exclusively to providers serving foreign customers, whereas those already licensed to serve Singapore’s domestic market can continue international operations if in full compliance [para. 4]. The abruptness of the new regulation, with no grace period, surprised many industry participants. Some, especially those involved in Web3 development, may consider relocating, potentially diminishing Singapore’s position in the global digital asset sector in the near term, as noted by industry veteran Chia Hock Lai of the Responsible Fintech Institute [para. 5].

However, MAS defended its decision, stating the policy has been under public consultation since February 2022, and only a small number of DTSPs are likely affected. MAS confirmed direct communication with impacted firms for an orderly wind-down [para. 6]. The changes are part of a tightening regulatory trend following high-profile crypto collapses, such as Three Arrows Capital and FTX, starting since 2022 [para. 7]. According to Lily Z. King, COO at Cobo, Singapore has a record of early regulatory action, including its 2020 Payment Services Act, and this latest update refines DTSP-related provisions under the 2022 Financial Services and Markets Act [para. 8].

Some insiders describe the policy as "cliff-edge" regulation, likely prompting market shake-out and potentially forcing smaller providers to exit, though others support the move for improved compliance and risk management. The shift is expected to drive consolidation and focus the sector on larger, well-capitalized, and compliant institutions [para. 9][para. 10]. Gong Yefeng from HashKey OTC noted that increasing alignment between operational locales and regulatory jurisdictions will help contain risks, making the environment safer and more credible over time, despite short-term pressures on companies [para. 11].

Web3 companies, promoted as the next evolution of the internet promising user control of data and assets through blockchain, could be particularly impacted as compliance costs rise, with some firms reportedly planning to relocate their businesses [para. 12][para. 13]. For example, “George,” a Chinese founder of a Web3 firm in Singapore, explained that the new regulations are pushing startups out of the country, favoring more established companies with substantial capital, and shifting innovation hubs towards Tokyo, Dubai, and Hong Kong [para. 14][para. 15][para. 16]. In recent years, Singapore’s welcoming approach attracted key industry figures and made it a preferred base for Chinese crypto enterprises [para. 17].

Overall, the new policy marks a shift from prioritizing sheer industry scale to emphasizing quality, resilience, and regulatory compliance [para. 19][para. 20]. While this may temporarily reduce the number of active cryptocurrency firms in Singapore, industry leaders believe it will solidify Singapore’s reputation as a trusted venue for institutional crypto activity in the long run [para. 21].