Cryptocurrencies

The Singapore High Court judgment of CLM v CLN and Singapore International Commercial Court judgment of B2C2 ltd v Quoine Ltd affirms that cryptocurrency can be regarded as property and an "identifiable thing of value". 

According to the recent High Court judgment of CLM v CLN [2022] SGHC 46, cryptocurrency can be regarded as property. A person may be prevented by the court from using specified cryptocurrency they hold if there is a risk that they might use that cryptocurrency while its ownership is disputed in legal proceedings (ie protected by a proprietary injunction):

"The Singapore High Court case in CLM v CLN and others [2022] SGHC 46 is the first reported Singapore decision on the grant of an injunction against persons unknown to freeze cryptocurrency."
"The court agreed that cryptocurrency can give rise to proprietary rights which could be protected via a proprietary injunction."

Source: LexBlog, last revised on 5 March 2022

The Singapore International Commercial Court in B2C2 Ltd v Quoine Pte Ltd [2019] 4 SLR 17 was of the view that cryptocurrencies have the fundamental characteristic of intangible property as being an identifiable thing of value. When the case went on appeal, the Singapore Court of Appeal in Quoine Pte Ltd v B2C2 Ltd [2020] 2 SLR 20 did not come to a final position on the question on whether cryptocurrency constituted a species of property capable of being held on trust.

As it is now, Singapore laws are not settled as to the precise nature of the property right of a cryptocurrency. So, for example, it is still uncertain whether a person may use cryptocurrency as a security to a loan. Please click here to read Rajah & Tann Singapore LLP update on "Singapore Court of Appeal Delivers Landmark Judgment on Doctrine of Mistake in Cryptocurrency-Related Contract Claim" which provides a summary of the Singapore Court of Appeal's judgment in Quoine Pte Ltd v B2C2 Ltd [2020] 2 SLR 20.

When MAS first drafted the PS Act, there existed first generation digital tokens like Bitcoin and Ether that were used for payments – these were commonly known as “virtual currencies” or “cryptocurrencies”.

MAS brought these cryptocurrencies within scope of the Payment Services Act by defining a digital payment token (DPT) to be any digital representation of value (other than any excluded digital representation of value) that –

(a) is expressed as a unit;
(b) is not denominated in any currency, and is not pegged by its issuer to any currency;
(c) is, or is intended to be, a medium of exchange accepted by the public, or a section of the public, as a payment for goods or services or for the discharge of a debt;
(d) can be transferred, stored or traded electronically; and
(e) satisfies such other characteristics as the Authority may prescribe.

You can likely make cryptocurrency donations in Singapore if you can find any registered charities and/or Institutions of a Public Character (IPCs) that accept them. However, such donations are unlikely to be tax deductible as they do not fit under any of IRAS' approved types of tax deductible donations. If the crypto is converted to cash before donation, it may be tax-deductible if it meets the following conditions.

According to IRAS (Donations & Tax Deductions),

Cash Donations

Cash donations made to an approved Institution of a Public Character (IPC) or the Singapore Government for causes that benefit the local community are deductible donations.

Not all registered charities are approved IPCs. Donations made to a charity without approved IPC status are not tax-deductible.

Cash Donations with Benefits

Only outright cash donations that do not give material benefit to the donor are fully tax-deductible. When a donor receives a benefit in return for the donation made, tax deduction is granted only on the difference between the donation and the value of benefit. However, as a concession, certain donations made to IPCs on or after 1 May 2006 will be deemed as pure donations although there is benefit given in return for the donation. To qualify for the concessionary tax treatment, donations with benefits given in return will be treated as pure donations if the benefits are treated as having no commercial value.

Before 19 Mar 2021

Benefits are treated as having no commercial value if:

1. the benefit is given in acknowledgement of the donation;
2. the benefit has no resale value.

On or after 19 Mar 2021

IRAS has reviewed and updated the concessionary tax treatment after consultation with IPCs. To be treated as having no commercial value, the benefits must be:

1. given out in connection with a fundraising activity; and
2. fall within the list of benefits specified in paragraph 6.4 of our e-Tax Guide for Donations made on or after 19 March 2021.

^New! For details on the concessionary tax treatment and a list of common benefits given in return for donations and their tax treatment, please refer to the IRAS e-Tax Guide "Tax Treatment on Donations with Benefits (Donations made before 19 March 2021)" (PDF, 83KB) and "Tax Treatment on Donations with Benefits (Donations made on or after 19 March 2021)" (PDF, 215KB).

This donation scheme applies to both corporate and individual donors.

Recognition of cryptocurrencies/crypto assets

"The FSC adopts the FATF's definition of virtual asset, defining it as a digital representation of value that can be digitally traded or transferred and can be used for payment or investment purposes.  Virtual currencies do not, however, include digital representations of fiat currencies."

Source: Freeman Law

The FSC (Financial Services Commission) is the financial regulatory authority of the BVI. 

Regulatory framework

"As at the date of writing, there is no separate framework for the regulation of cryptocurrencies or crypto assets in the BVI. Instead, the BVI has relied upon existing legislation regulating financial instruments to capture digital assets where they exhibit characteristics of a financial product or security."

Source: Mondaq, last revised 19 July 2021

"The BVI Financial Services Commission (FSC) recently issued the Guidance on Regulation of Virtual Assets in the Virgin Islands (the guidance), relating to the regulation of virtual assets generally, which would include crypto-currencies and utility tokens. The FSC has taken a constructive attitude towards virtual assets and, generally, is not seeking to impose regulation on virtual assets that they would not have been subject to under the existing, "mainstream" financial services regulatory framework in the BVI."

Source: Ogier, last revised 30 July 2020

Existing regulations 

"The Securities and Investment Business Act 2010 (“SIBA”)
SIBA forbids any individual or company from carrying out investment business activity without holding a license authorized by the BVI Financial Services Commission (“FSC”).  While the act does not point to cryptocurrencies or any virtual token, it is important to consider the definitions provided in this act.

Anti-Money Laundering Regulations 2008 (“AML”)
The AML do not interfere with the launching of cryptocurrency since the legislation does not define it or any other relevant business activity. However, it may be considered as speculations, but the Act could be modified in the future to include cryptocurrency. In conclusion, the Act must be considered because it may be modified.

BVI Electronic Transaction Act 2001 (“ET”)
ET is relevant when considering a cryptocurrency entity as this act regulates all electronic contracts and records. All electronic contracts and records shall not be denied legal validity in the BVI simply because they are only maintained in electronic format. It is worth noting that crypto related transactions are carried our electronically.

Beneficial Ownership Secure Search System Act 2017 (“Boss Act”)
The Boss Act requires that resident agents in the BVI record information as to the beneficial ownership of the company on a central government-controlled database. Boss Act defines beneficial ownership as the person, juridical or natural, that holds control over the entity (i.e. share ownership, voting rights, the rights to appoint board members and influence and control over a company). As the factor of disclosure is the control of the entity, token holders in a crypto currency would not be recorded as any beneficial owner.

BVI Financial Services Commission (“FSC”)
In 2020, the BVI the Financial Services Commission (FSC) published Guidance on the Regulation of Virtual Assets in the island. The first step is to determine if a license is applicable for any financial services unless they are excluded. To determine whether licensing is required for virtual assets, the following factors must be taken into consideration:

• The way the crypto asset is being utilized.
• The types of business activities being proposed or conducted.
• Whether the business activities are similar to traditional business activities; and
• The characteristic and business activities concerning economic substance.

Once it has been determined that it conducts a regulated activity, a license is required and the entity must comply with the Anti-money Laundering Regulations, 2008, the Regulatory Code, and the Financial Services Commission Act, 2001."

Source: Quijano & Associates

Details on the types of licenses granted by the BVI FSC can be found here.

Virtual Asset Service Providers (VASPs) functioning in the UK are required to register with the FCA and follow its guidance and rules on anti-money laundering, including adhering to the international standards set by FATF and complying with ML Regs.

From 10 January 2020, existing businesses (meaning those operating immediately before 10 January 2020) carrying out cryptoasset activity in the UK must be compliant with the ML Regs. This includes the requirement to have been registered with the FCA by 9 January 2021 in order to continue doing business.

Those businesses which began operating after 10 January 2020, are required to obtain full registration with the FCA before conducting business.

Though the FCA’s crypto registration is not called a licensing regime under the law, it is regarded as similar to a license, as cryptoasset providers (such as cryptocurrency exchanges and custodian wallet providers) are not able to function in the UK without it.

Cryptoasset exchange and custodian wallet providers based in the UK come under the ML Regs and they must register with the FCA and comply with ML/CTF regulations in order to continue their business in the UK.

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A crypto-asset provider or custodian service provider that maintains a physical presence in the UK (such as an office or ATMs) or is engaged in or facilitates crypto-asset activities needs to be registered with the FCA. Those who don’t have an office or other activity in the UK, beyond having a client in the UK, are unlikely to be considered by FCA as they are not conducting their business in the UK. Refer to the following chart from the FCA for a detailed overview of who should be registered:

A collaboration between Merkle Science & FinReg 

In line with the prediction made by 'Merkle Science RegWatch — The UK Regulation Roadmap' panelists, the Financial Conduct Authority (FCA) issued a statement on 3 June 2021 extending the temporary registration deadline for crypto asset firms and providing insights on the status of the UK’s crypto licensing regime. This temporary scheme allows those firms which registered before December 2020 and are yet to receive approval from the FCA to continue conducting operations until they get the green light or their applications are formally rejected.
The pandemic had created a backlog in registration as resources within the FCA have been focused on initiatives such as loan schemes to support vulnerable UK citizens. Post Covid-19, the UK’s financial regulator is now transitioning back into stability. To catch up with this backlog, the FCA pushed back the deadline for the temporary license registration from 9 July 2021 to 31 March 2022.