Nature of NFTs

The Payment Services Act (PSA) was enacted to regulate cryptocurrency service providers and digital payment tokens in January 2020. However, it is generally considered that PSA does not apply to NFTs because (1) NFTs may fall under the “limited purpose digital payment tokens”, which are exempted from the PSA and (2) NFTs are not an accepted method of payment for goods and services, and thus they are likely not fall under the scope of “digital payment tokens” under the PSA.

Source: One Asia Lawyers Group, last revised July 2021

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To date, NFTs do not appear to be a medium of exchange accepted by the public as payment for goods or services. Therefore, would not fall within the definition of a “digital payment token” under the PSA.

However, given that NFTs can be easily converted into digital payment tokens, they may well be used as a means to bypass the regulations under the PSA (and the requirement for a license) for the purposes of trading digital payment tokens.

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Depending on the nature of the NFT, it might possibly fall under regulation as a "digital payment token" under the Payment Services Act.

"It depends on the application of the NFT. As of October 2021, the Monetary Authority of Singapore (MAS) has not released any guideline or directions pertaining to NFTs in Singapore.

Under the PS Act, NFTs may be considered “digital payment tokens” if they:-

(a) are expressed as a unit;

(b) are not denominated in any currency or pegged to any currency;

(c) are intended to be, a medium of exchange accepted by the public, or a section of the public, as payment for goods or services or for the discharge of a debt;

(d) can be transferred or capable of being stored or traded electronically; and

(e) satisfy such other characteristics as the MAS may prescribe.

Source: PD Legal LLC, last revised 28 September 2021

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Based on the above, although it appears that the definition of a “digital payment token” mainly applies to fungible tokens, it may be possible for certain types of NFTs, depending on the relevant factual circumstances (such as its usage and attributes) and underlying digital file, to fall within the definition of a “digital payment token”. Correspondingly, the relevant provisions within the PS Act may be applicable to NFTs which constitute digital payment tokens.

Source: CNPLaw LLP, 27 May 2021

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There is also a general consensus that the Payment Services Act 2019 of Singapore (the “PSA”), which regulates cryptocurrency service providers and digital payment tokens, does not apply to NFTs due to the non-fungible nature of NFTs - which only allows an exchange for specific goods. Under the PSA, tokens which fall under the scope of “limited purpose digital payment tokens” are exempted from the application of the PSA, whereby the definition of a “limited purpose digital payment token” is as follows:⁵

Any non-monetary customer loyalty or reward point(s), any in‑game asset(s) or any similar digital representation of value that:

(a) cannot be returned to its issuer, transferred or sold in exchange for money; and

(b) may only be used:

• in the case of non-monetary customer loyalty or reward point(s) - for the payment or part payment of, or in exchange for, goods or services, or both, provided by its issuer or any merchant specified by its issuer; or
• in the case of an in-game asset – for the payment of, or in exchange for, virtual objects or virtual services within an online game, or any similar thing within, which is part of or in relation to, an online game.

⁵ Section 3 of the First Schedule of the Payment Services Act 2019 of Singapore.

Source: Nishimura & Asahi