Cryptoassets and the Rule of Law: A View From Singapore

By Joshua Ng

Source: https://unsplash.com/photos/9pCV2MB65y8

The developing sphere of crypto asset regulation is one that is of great interest to observers. After all, we are seeing an entirely new regulatory system being built from the ground-up in response to the emergence of an entirely new asset class. In fact, the Monetary Authority of Singapore (MAS) [1] and the UK’s Financial Conduct Authority (FCA) [2] have both recently published new secondary legislation with the purpose of regulating the advertisement of crypto assets. As such, the focus of this post will be the regulation of crypto asset advertising, given the increasing popularity of these assets among the general public. In particular, this post will compare the different approaches to regulation taken by the FCA and the MAS, evaluating them from a rule of law perspective. Given that conformity with the rule of law entails requirements such as clarity and accessibility, this is likely to correlate to the efficacy of the regulations.


'Caveat emptor': The FCA Way

In general, the FCA appears to take a rather laissez-faire approach to the regulation of crypto assets. In fact, up until just recently, the FCA has only [3] regulated crypto assets in relation to anti-money laundering, with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. These regulations also require crypto asset providers to register with the FCA, but nothing more.


That said, the Authority has taken new measures to specifically regulate the promotion of crypto assets. Published in January 2022, the FCA has come up with a consultation response [4] outlining the Government’s plans to bring the promotion of crypto assets under the scope of The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005. This will be done by (i) creating a legal definition for crypto assets [5] and (ii) incorporating crypto assets under the umbrella of ‘regulated’ investments covered by the 2005 Promotion Order (likely via amendment of Schedule I of the Order).


In practical terms, this will mean that future individuals looking to advertise crypto assets have to be an authorised person within the meaning of the Financial Services and Markets Act 2000, [6] which involves an application to the FCA for permission to do so. [7]


However, beyond having to apply to the FCA for permission to do so, there is little to no other regulatory oversight regarding crypto asset promotion. Crypto assets as a whole are largely unregulated by the FCA, a seemingly intentional [8] approach taken by the regulator.


Defenders of the General Public: The MAS Approach

In terms of general approach, the MAS appears to have the same laissez-faire approach as the FCA. Crypto asset providers in Singapore also have to register with the MAS before they can provide their services, and are similarly regulated for anti-money laundering activities. [9]


However, the MAS is noticeably more stringent when it comes to the promotion of crypto assets to the general public. In its latest announcement, the Authority has opted to ban the advertising and promotion of crypto assets to the general public except on crypto asset providers’ official social media accounts. [10] This prohibition also extends to the provision of in-person access to cryptocurrency Automated Teller Machines (ATMs).


In the MAS’ own words, such a policy discourages consumers from trading crypto assets “on impulse, without fully understanding the attendant risks.” [11] The policy characterises the MAS’ more cautious approach to the regulation of crypto assets, and is perhaps reflective of the more paternalistic approach Singapore tends to take towards regulations in general.


Conformity with the rule of law

The rule of law requires that individuals be able to sufficiently predict the outcome of their actions, and hence how the law will respond [12]. Naturally, this demands that the exercise of state power be governed by law. This also demands that the law be predictable, which is in turn influenced by the accessibility and clarity of the law.


Both approaches to the regulation of crypto asset promotion do not appear to be arbitrary. In the MAS’ case, regulation is done with the clear policy goal of protecting the uninformed public from the risk of trading extremely price-volatile assets. [13] Moreover, this power is not exercised unlawfully; it was granted by the Payment Services Act 2019. [14] Similarly, the FCA’s decision to regulate the promotion of crypto assets is informed by the increasing proportion of individuals that, despite not being sufficiently educated on the risks of trading crypto assets, decide to do so anyway. [15] Moreover, this statutory power is granted by the Financial Services and Markets Act 2000, and is not exercised unlawfully either. [16]


That said, the MAS’ approach to regulating crypto asset promoters appears to be clearer than the FCA’s approach. By relying on a general definition of what might be considered a crypto asset — in this case turning on the ‘fungibility’ and ‘transferability’ of the asset in question — the FCA risks implementing an over-inclusive policy. In fact, the Authority acknowledges as much, suggesting that supermarket vouchers that are cryptographically stored (and thus fall within the definition of a crypto asset) be added to a list of exceptions that are unaffected by promotion regulations. [17] On the other hand, the MAS manages to avoid this ambiguity by imposing regulations based on the type of service the firm provides. [18] This avoids the overinclusiveness of the FCA’s policy, while still capturing the necessary crypto asset-promoting firms. Moreover, the MAS’ approach has the side-effect of being more accessible — firms do not have to refer to a list of exceptions to determine if they are subject to promotion regulations.


Conclusion

We can thus see that the MAS’ approach to the regulation of crypto asset promotion is more consistent with the rule of law, despite being more cautious. Not only is it less ambiguous, it is also clearer — increasing the efficacy of the policy as a result.






References

[1]: Monetary Authority of Singapore, ‘MAS Issues Guidelines to Discourage Cryptocurrency Trading by General Public’, https://www.mas.gov.sg/news/media-releases/2022/mas-issues-guidelines-to-discourage-cryptocurrency-trading-by-general-public#:~:text=The%20Monetary%20Authority%20of%20Singapore,the%20general%20public%20in%20Singapore, accessed 13 Feb 2022


[2]: HM Treasury, ‘Government to strengthen rules on misleading cryptocurrency adverts’, https://www.gov.uk/government/news/government-to-strengthen-rules-on-misleading-cryptocurrency-adverts, accessed 13 Feb 2022


[3]: The Money Laundering and Terrorist Financing (Amendment) Regulations 2019. s.3


[4]: HM Treasury, ‘Cryptoasset promotions: Consultation response’ (January 2022)


[5]: Ibid, 14


[6]: Financial Services and Markets Act 2000, s.21(1)


[7]: Ibid, Part 4A


[8]: Financial Conduct Authority, ‘Cryptoassets’, https://www.fca.org.uk/consumers/cryptoassets, accessed 13 Feb 2022


[9]: Payment Services (Amendment) Act 2021 (Singapore), s4


[10]: Monetary Authority of Singapore, ‘Guidelines on Provision of Digital Payment Services to the Public’ (Guideline No. PS-G02), para 2


[11]: Monetary Authority of Singapore (n 1)


[12]: Joseph Raz, ‘The Rule of Law and Its Virtue’ in J Raz, The Authority of Law (2nd edn, OUP 2009), 215


[13]: Monetary Authority of Singapore (n 1)


[14]: Payment Services Act 2019 (Singapore), s.101


[15]: HM Treasury (n 4), para 1.3


[16]: Financial Services and Markets Act 2000, s.137A


[17]: HM Treasury (n 4), para 4.7


[18]: Monetary Authority of Singapore (n 10), para 1.3