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MAS Releases "A Guide to Digital Token Offerings"

On 14 November 2017, the Monetary Authority of Singapore (the “MAS”) released  “A Guide to Digital Token Offerings” providing general guidance on the application of the securities laws administered by the MAS in relation to offers or issues of digital tokens in Singapore.

The main consideration is whether the digital token is designed in a way that would make it a product regulated under Singapore’s securities laws i.e. if it behaves like a share, debenture or some other form of security. If a token does not function like a security, then technically, neither will the security laws apply.

In the first case study in the guide, Company A plans to set up a platform to enable sharing and rental of computing power amongst the users of the platform. In order to raise funds to develop this platform, Company A intends to offer and sell digital tokens wherein the token will have utility upon completion. The MAS states that the digital token in this case study would not constitute a security under the Securities and Futures Act (Cap. 289). It appears that this is because other than the right to access the issuer’s platform to rent computing power, the digital token in question did not appear to have any other “rights” or “features” that made it look like a security.

Therefore, if a digital token is structured in a similar way as set out in this case study, then it would presumably not trigger the relevant Singapore securities laws, notwithstanding the fact that the sale of the token may have been used to fund the building of the platform.

The practical issue to consider then is this:- How will a company convince its investors to purchase such digital tokens in the first place, given that they do not appear to offer any type of rights or features that would give potential purchasers of those digital tokens a return on their investment?

Singapore is devoting huge resources to building the FinTech industry and offering many incentives to new entrants in the jurisdiction. Initial Coin Offerings (“ICOs”) structured like the example herein would seem to be acceptable.

Copyright 2018 K & L Gates

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About this Author

Nicholas M. Hanna, KL Gates, private fund placements lawyer, convertible bonds attorney
Partner

Mr. Hanna has a particular focus on equity capital markets, private equity, joint ventures, mergers and acquisitions. He represents numerous corporate clients seeking to list on the Official List and AIM on the London Stock Exchange. He also advises on structuring private equity funds and other methods of alternative finance including private placements and convertible bonds.

Mr. Hanna acts for a broad range of industries including food and beverages, oil and gas, mining, financial services, defense, aviation and manufacturing.

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Samantha See, KL Gates, equity capital markets lawyer, joint ventures attorney
Associate

Ms. See is an associate in the Singapore office. Her practice focuses on mergers and acquisitions, equity capital markets, joint ventures, corporate finance, corporate commercial as well as debt capital markets. Ms. See has acted for corporate clients, banks, financial institutions and multinational corporations across a broad range of industries.

65-6507-8190