Asia Updates: Singapore relaxes regulation of VC managers, ramps up requirements for Initial Coin Offerings

Singapore’s financial regulator, the MAS is taking different approaches to two sources of funding for Singapore’s burgeoning start-up scene.

During the summer MAS announced a relaxation in the regulations relating to VC fund managers (deemed to be managers of VC Funds that (i) invest in unlisted business ventures that have been operating for no more than five years, (ii) are closed ended with a limited subscription window and (iii) are only offered to accredited and/or institutional investors). Under new rules expected to take effect before the end of 2017 new VC managers can expect a simplified and faster authorisation process and relaxed operating and conduct of business requirements. The MAS expects these measures to broaden the pool of VC funding available to start-ups in Singapore.

However, the MAS has recently taken a somewhat different approach to the regulation of Initial Coin Offerings (ICOs) in Singapore. ICOs typically involve a start-up raising capital through the issuance of tokens (akin to cryptocurrency shares of the venture). They are, in essence, a new method of crowdfunding facilitated through blockchain and cryptocurrency technology.

ICO’s initially operated outside of the regulated sphere in Singapore but in August 2017 the MAS followed the United States’ SEC in confirming that these tokens should be regarded as “securities” for the purposes of local financial services regulations. As ICOs are typically marketed to the public / retail investors, those wishing to raise capital through an ICO in Singapore are likely to find themselves subject to the highest level of regulatory oversight in Singapore, with the cost of compliance likely to be prohibitive for all but the largest players.

The MAS is a prudent regulator and the approach adopted is understandable given the potential exposure of retail investors to unscrupulous issuers. In the main however, the MAS has been a promoter of fintech innovation in Singapore, having budgeted S$225m (£130m) to develop fintech projects and applications and pioneer a pilot with R3 and a consortium of banks to trial the conduct of interbank payments using blockchain technology. MAS has also created a cryptocurrency version of the Singapore dollar, available on the Ethereum blockchain.

So, we do not expect this to be the end of ICOs in Singapore and we continue to see significant interest in the use of ICOs not just to raise start-up capital, but increasingly as another form of fundraising for institutional investors. The use of blockchain technology has the potential to significantly reduce the operating costs of investment funds, and, by way of example, there are already countless successful crowdfunded real estate platforms in operation that could equally have been structured as an ICO. In the development of ICOs Singapore has the advantage of being a global centre for fund management and has an innovation-friendly government, so would be an obvious choice for one of the first institutional-grade ICOs in due course.