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MAS to regulate virtual currency intermediaries

New rules, likely to kick in within a year, largely hailed by local bitcoin exchanges
Friday, March 14, 2014 - 06:00

[SINGAPORE] Singapore is set to be among the first in the world to regulate operators of bitcoin and other virtual currencies.

In a pre-emptive strike against money-laundering and terrorist-financing risks, the Monetary Authority of Singapore (MAS) will introduce regulations for firms that "buy, sell or facilitate the exchange of virtual currencies for real currencies to verify the identities of their customers and report suspicious transactions to the Suspicious Transaction Reporting Office".

"The requirements will be similar to those imposed on money changers and remittance businesses who undertake cash transactions," MAS said yesterday.

The new rules, expected to kick in within the next 12 months after a public consultation and any necessary changes to the law, will apply to bitcoin exchanges, brokers and operators of bitcoin vending machines - all of which have proliferated here. There are several bitcoin exchanges here, and a burgeoning number of bitcoin vending machines.

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Few countries regulate the use or business of bitcoin. In the United States, the Financial Crimes Enforcement Network gets bitcoin operators to toe the anti-money-laundering line. In Japan, banks are forbidden from getting involved in bitcoin transactions.

In recent weeks, Mt Gox - formerly the world's largest bitcoin exchange - has filed for bankruptcy while bitcoin exchange Flexcoin has gone under, undone by hackers.

MAS's move signals a hardening of its position on the cryptocurrency, having evolved from merely cautioning consumers on using bitcoin last June. Now, it will "consider additional measures" to tackle the risks posed by bitcoin and its ilk if necessary, it said.

For now, MAS will not govern the consumer or investor welfare aspect of virtual currencies. "Investors in virtual currencies will not have the safeguards that investors in securities enjoy," it warned.

In local bitcoin circles, the new rules were largely viewed positively.

"These rules are great to protect our customers, as well as our industry," Antony Lewis, business development manager for local exchange itBit, told The Business Times.

The exchange has long had its own know-your-customer (KYC) processes. It uses "banking-level customer identification, including government ID and proof of address which we run through the same databases that banks use", Mr Lewis added.

Another exchange, FYB-SG, has been verifying the identity of customers since Oct 18 last year, its founder Luv Khemani said. The exchange had been instructed to do so by MAS, in relation to the Payment Systems (Oversight) Act, which a portion of his business falls under.

While bitcoin businesses might be open to scrutiny, many of its users are not, for various reasons. After FYB-SG started verifying identities, trading volumes fell. Volumes have since recovered, but more because of bitcoin's increased adoption rather than the return of its more private customers.

At itBit, about 50 per cent of its potential customers do not make it through the exchange's KYC process and are turned away, Mr Lewis said.

Over at Coin Republic, David Moskowitz believes that the new rules will slow down the order process for bitcoin brokers. Even so, Coin Republic already requires transactions to be carried out over Internet banking, which is trackable. "The businesses here are already self-regulating," Mr Moskowitz said.

Now, the bitcoin boom in Singapore is in full swing. Coin Republic will launch a bitcoin ATM in a joint venture with Canadian firm Bitcoiniacs this coming Monday at Bartini Kitchen in Boon Tat Street.

This machine, which will have cash-in and cash-out options, will be capable of checking users' identification documents as well as take a palm-print and photo of the customer if necessary. It is not clear if such features will be available on launch next week.

Two other bitcoin machine operators - Tembusu Terminals and Bitcoin Exchange - also said that their machines can be customised to comply with KYC requirements. In the coming months, both of them will install even more machines here.

Other bitcoin businesses continue to join the fray, eager to play by the rules. Quantified Assets Pte Ltd, for example, previewed a service yesterday that lets people pay for numerous bills with bitcoin - from their mobile-phone bills to their electricity charges.

Its founder, Ville Oehman, applauded MAS's move. "It further clarifies the market and sets reasonable expectations of quality and safety controls for the companies," Mr Oehman said.

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