A new financial-sector wide legislation, the Financial Services and Markets Act 2022, will be introduced in Singapore to enhance the regulator's effectiveness in addressing financial sector-wide risks. The new Act potentially impacts financial institutions (FIs) and virtual asset service providers (VASPs), for the reasons explained below.

The key features of the new Act include:

1. A harmonised and expanded power for the regulator, the Monetary Authority of Singapore (MAS), to issue prohibition orders (POs) to any person linked to the financial sector and who is not fit and proper.
   
   Currently, MAS has powers to issue POs under certain (but not all) legislation administered by it. The Act will consolidate MAS' powers to issue POs, by introducing a harmonised and expanded power to prohibit any person linked to the financial sector and who is not fit and proper from performing functions that are critical to the integrity and functioning of FIs, such as the handling of funds and assets. These PO powers are broadly aligned with those held by local regulators in Australia, Hong Kong, the UK and US. The new powers will also allow MAS to issue POs to service providers of FIs, and this could impact how FIs conduct due diligence on the service providers they engage. The MAS intends to issue guidelines to clarify how the new powers will be exercised, as they are potentially wide and far-reaching.
   
   As a result of these changes, FIs may have to re-look at their due diligence procedures to ensure that they do not employ, enter into an arrangement with or use the services of, persons who are the subject of POs to carry out the activities that the latter have been prohibited from carrying out.
   
   
2. A consolidation of the powers of the MAS to impose requirements on technology risk management (TRM) on any FI or classes of FI, in relation to the FI's system(s), irrespective of whether the system(s) supports a regulated activity. The maximum penalty for breaches of the relevant Regulations and Notices issued is set at S$1 million. Currently, the MAS intends to re-issue existing notices on TRM and cyber hygiene under the new powers. As such, there is no real impact on FIs as the consolidated powers do not impose specific or new requirements upon FIs at this point in time.
   
   
3. Introducing a new licensing regime for VASPs, in compliance with enhanced FATF Standards.

The introduction of the new licensing regime will mean that persons in Singapore providing any type of digital token (DT) service outside Singapore will be subject to licensing and ongoing requirements under the new Act. They will also be regulated for money laundering / terrorism financing risks (the requirements imposed on DT service providers will be aligned with those imposed on digital payment token service providers under the Payment Services Act 2019), and subject to MAS' existing TRM and cyber hygiene requirements.

The scope of DT service subject to regulation includes, among other things, dealing in DTs, facilitating the exchange of DTs, providing custodial services in respect of a DT or DT instrument, and providing financial advice relating to the offer or sale of DTs.

The MAS does not intend to provide a transitional arrangement for DT service providers. Once the new licensing framework is in effect, DT service providers currently in operation will have to suspend or cease operations, until they obtain a licence from MAS.

Details surrounding the new licensing regime will be subject to a further round of public consultation. VASPs in Singapore should keep a look out for further developments in this regard.

The provisions of the Financial Services and Markets Act 2022 are not yet in operation. In the meantime, FIs and VASPs should consider the impending changes and assess their compliance risks in this regard.

Authors: Lena Ng, Sheena Teng