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  • BACKGROUND

    • 8

      Technological innovation is transforming the financial services industry. Constant advances in new technologies have provided opportunities for significant change and disruption to financial services and other related activities globally. Developments in distributed ledger technologies ("DLT") have led to the emergence of digital assets, such as virtual coins or tokens for capital raising, and crypto assets/currencies for the facilitation of economic transactions.

    • 9

      This Guidance focuses on FSRA's regulatory treatment of Crypto Assets. For the purposes of the Spot Crypto Asset Framework, the FSRA has defined Crypto Asset in the FSMR as follows:

      "Crypto Asset" means a digital representation of value that can be digitally traded and functions as (1) a medium of exchange; and/or (2) a unit of account; and/or (3) a store of value, but does not have legal tender status in any jurisdiction. A Crypto Asset is —

      (a) neither issued nor guaranteed by any jurisdiction, and fulfils the above functions only by agreement within the community of users of the Crypto Asset; and
      (b) distinguished from Fiat Currency2 and E-money3."

      2 "Fiat Currency" means government issued currency that is designated as legal tender in its country of issuance through government decree, regulation or law.

      3 "E-money" means a digital representation of Fiat Currency used to electronically transfer value denominated in Fiat Currency. The FSRA considers E-money activities to be covered by its payments regulatory framework.

    • 10

      The diagram and table below sets out the FSRA's regulatory approach in relation to different types of digital assets.

      Category of Digital Assets / Instruments Regulatory Approach
      "Security Tokens"

      (e.g., virtual tokens that have the features and characteristics of a Security under the FSMR (such as Shares, Debentures, Units in a Collective Investment Fund)).
      Deemed to be Securities pursuant to Paragraph 58(2)(b) of FSMR.

      All financial services activities in relation to Security Tokens, such as operating primary / secondary markets, dealing / trading / managing investments in or advising on Security Tokens, will be subject to the relevant regulatory requirements under the FSMR.

      Market intermediaries and market operators dealing or managing investments in Security Tokens need to be licensed / approved by FSRA as FSP holders, Recognised Investment Exchanges or
      "Crypto Assets"

      (e.g., non-fiat virtual currencies).

      As provided in paragraph 9, this Guidance is focused on Crypto Assets.
      Recognised Clearing Houses, as applicable.

      Treated as commodities and, therefore, not deemed Specified Investments under the FSMR.

      Pursuant to the Spot Crypto Asset Framework, however, market intermediaries (e.g. broker dealers, custodians, asset managers) and Crypto Asset Exchanges dealing in or managing Crypto Assets will need to be licensed / approved by FSRA as OCAB Holders. Only activities in Accepted Crypto Assets will be permitted.
      "Utility Tokens" or "Non-Security Tokens"

      (e.g., virtual tokens that do not exhibit the features and characteristics of a regulated investment / instrument under the FSMR).
      Treated as commodities and, therefore, not deemed Specified Investments under the FSMR.

      Unless such Utility Tokens are caught under the definition of Crypto Assets,, spot trading and transactions in Utility Tokens do not constitute Regulated Activities, activities envisaged under a Recognition Order (e.g., those of a Recognised Investment Exchange or Recognised Clearing House), or activities envisaged under the Market Rules (MKT).
      Derivatives and Collective Investment Funds of Crypto Assets, Security Tokens and Utility Tokens Regulated as Specified Investments under the FSMR.

      Market intermediaries and market operators dealing in such Derivatives and Collective Investment Funds will need to be licensed / approved by FSRA as FSP holders, Recognised Investment Exchanges or Recognised Clearing Houses, as applicable.

    • 11

      For clarification, the Spot Crypto Asset Framework is not intended to apply to initial token or coin offerings (ICOs), (whether Security or Utility tokens), or other capital raising purposes. For details on FSRA's regulatory treatment of ICOs, security tokens and utility tokens please refer to FSRA's ICO Guidance.