Prevalence and Regulation of Cryptocurrency Transactions

Mr Yip Hon Weng asked the Prime Minister (a) what is the prevalence of cryptocurrency transactions involving privacy coins and privacy wallets in Singapore; and (b) whether the Government regulates the use of privacy coins and cryptocurrency mixers.

Mr Tharman Shanmugaratnam (for the Prime Minister): Privacy coins 1 , privacy wallets 2 or cryptocurrency mixers 3 can be misused by criminals since they are all designed to hide the identity of persons behind cryptocurrency transactions. The Financial Action Taskforce (FATF) has issued guidance 4 to the international community to treat transactions involving such anonymity features as highly risky. This means that regulated entities that undertake such transactions for their customers must take additional measures to mitigate the associated money laundering and terrorism financing (ML/TF) risks.

Accordingly, the Monetary Authority of Singapore (MAS) requires digital payment token (DPT) service providers engaged in customer transactions involving such anonymity features to put in place stronger controls to address the higher risks they pose. In particular, they must assess the ML/TF risks posed by such tokens before dealing in them. MAS must be satisfied that they have taken adequate control measures to manage these risks 5 . MAS also requires DPT service providers to assess the purpose of their customers' use of privacy coins, privacy wallets or mixers and to undertake enhanced monitoring of their transactions 6 .

Most licensed DPT service providers in Singapore do not offer privacy coins to their customers. There is, currently, no data on the use of privacy wallets and cryptocurrency mixers in Singapore, as both are, essentially, open-source and non-custodial protocols created by software developers and used to transact peer-to-peer. Nonetheless, MAS is closely monitoring the business activities of licensed DPT service providers. They are required to periodically report to MAS on DPTs they hold or transact in that they have assessed to be of higher risk. MAS will take appropriate supervisory actions against regulated entities that fall short of its standards.

Note(s) to Question No(s) 1:

1 Privacy coins, or anonymity enhanced coins, obscure transactions on the blockchain to protect users’ privacy and anonymity.

2 Privacy wallets, or mixing-enabled wallets, allow transfers where multiple user’s transactions are combined into a single transfer. Similar to mixers, these wallets obscure the original ownership of cryptocurrencies and make transactions difficult to trace.

3 Mixers or mixing services are software or services which allow users to commingle their cryptocurrencies with the aim of obscuring their original ownership and make transactions difficult to trace.

4 FATF’s Updated Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers, published on 28 October 2021.

5 Paragraph 5 on requirements relating to new products, practices and technologies as set out in MAS Notice PSN02 on Prevention of Money Laundering and Countering the Financing of Terrorism – Digital Payment Token Service and the corresponding paragraphs in the accompanying Guidelines.

6 Paragraphs 6.25 to 6.33 on requirements relating to ongoing monitoring as set out in MAS Notice PSN02 on Prevention of Money Laundering and Countering the Financing of Terrorism – Digital Payment Token Service and the corresponding paragraphs in the accompanying Guidelines.