Singapore's encryption regulatory new rules: Where should encryption asset service providers go from here?

Singapore does not want to drive away the encryption industry, but rather aims for its sustainable development, rather than being a “safe haven” for criminals.

Written by: Mankiw

Singapore’s Web3 Paradise Status Faces New Challenges

Singapore, known as the “Web3 Paradise of Asia”, has been a preferred destination for global encryption asset service providers and Web3 entrepreneurs for many years, thanks to its zero capital gains tax and comprehensive legal system. In October 2024, the Monetary Authority of Singapore (MAS) released a detailed consultation draft for new regulations on digital token services, signaling a tightening of regulatory policies; while the response document to the new regulations released by MAS on May 30, 2025, has sparked heated discussions in the encryption industry about whether there is a need to “withdraw” from Singapore. So, what will happen to encryption asset service providers operating in Singapore—especially those providing services to overseas clients?

Core of the New Regulations: Regulatory Upgrade Again

As early as 2022, Singapore passed the Financial Services and Markets Bill, in which Chapter 9 specifically established a regulatory framework for Digital Token Services (DTS), covering various virtual assets and encryption asset businesses, such as:

• encryption assets and fiat currency exchange
• Confidential asset transfer payment
• Encryption asset custody service

However, at that time, the Financial Services and Markets Bill did not strictly restrict Singapore-registered entities from providing services to overseas users. Coupled with tax incentives, a large number of web3 projects settled in Singapore, extending their services globally. By October 2024, the regulatory framework was further refined, and the MAS clearly stated in its consultation paper that entities registered in Singapore, even if providing encryption services to overseas clients, would need a DTSP license. With the consultation response released by MAS in May 2025, a more specific timeline was also provided: the new regulatory scheme will officially take effect on June 30, 2025. The MAS’s intention is clear: the days of wild growth are over; if you want to stay and play, you must follow the rules.

Why is Singapore doing this?

People may ask: hasn’t Singapore always been friendly to the encryption industry? Why has it suddenly changed its stance? In fact, this is not a “change of face”, but a continuation of Singapore’s consistent pragmatic style. As one of the first jurisdictions to begin regulating the encryption industry, its approach is to avoid a “one-size-fits-all” strategy, allowing the industry some space while closely monitoring and developing together with the industry, continuously exploring upgrades and iterations of regulatory policies and methods.

In the past few years, Singapore’s loose policies have not only successfully attracted a large number of encryption projects to land, but have also brought side effects:

1. License Abuse: The DTSP license is originally a compliant pass, but some institutions play “close to the edge” with it, and some project parties use the license to package themselves to attract investment or conceal non-compliant operations.

2. Telecom fraud: Telemarketing scams have always been a tumor in the encryption industry. Some criminals, based in Singapore, promote “high-return” encryption products via phone calls or social media, or induce customers to purchase unknown tokens, promoting false “custodial services,” and then abscond with the funds.

3. The breeding of gray and black industries and crimes: Some unlicensed encryption asset trading platforms provide “anonymous” services for customers, allowing criminals to engage in money laundering and terrorist financing activities; moreover, some encryption projects disguise funds of unknown origin as legitimate earnings, seriously disrupting the financial order.

These chaotic phenomena not only disrupt the normal development of the encryption industry but also damage the reputation of the industry and Singapore; when MAS updates the “National Anti-Terrorism Financing Strategy” in 2024, it will raise the terrorist financing risk level of DTS service providers from “medium-low” to “medium-high.” MAS has realized the necessity of tightening regulatory policies from various phenomena, and thus, the goal of the new regulations is very clear:

1. Eliminate “small and scattered”: Increase compliance costs to force “small platforms” that are easily abused by illegal activities to exit the market;

2. Retain “Big Players”: Encourage institutions with strong financial capabilities, compliance abilities, and the capacity to provide users with safe and stable services to stay.

3. Attracting Traditional Capital: Allowing banks, funds, and other traditional financial institutions and users to enter the web3 space with more confidence.

In other words, Singapore does not want to drive away the encryption industry, but rather aims to ensure its sustainable development, rather than being a “safe haven” for criminals.

How significant is the impact on industry participants?

If you are an encryption asset service provider, the impact of the new regulations depends on your business model. Specifically, it can be divided into several situations:

Situation 1: Unlicensed institutions operating locally in Singapore, serving overseas clients.

For example, a registered entity was established in Singapore, employing staff to provide encryption asset exchange services for overseas clients. After the new regulations come into effect, one must quickly apply for the MAS DTSP license; otherwise, the business will have to halt.

Situation 2: An individual in Singapore providing services remotely for overseas clients.

If you are a “digital nomad” working remotely and only serving overseas clients, the situation is a bit more complicated.

1. If signing a contract with an overseas registered entity, the current stance of MAS is: if an individual is an employee of a foreign registered company providing services outside Singapore, the work performed by that individual as part of their employment with the foreign registered company will not trigger licensing requirements.

2. If it is only for personal identity (such as KOL, project consultant, etc.), MAS’s current stance is: if the individual is located in Singapore and engages in providing digital token services to persons outside of Singapore (i.e., individuals and non-individuals), then that individual needs to apply for a license.

• It is important to note that the regulations set forth by MAS for such scenarios are relatively broad, and different cases may have different determinations.

Situation 3: The entity is registered in Singapore, but operates overseas.

If it is just a “shell company” registered in Singapore, while the actual business and service clients are overseas, the new regulations may have little impact.

However, it cannot completely eliminate risks: MAS may investigate the actual place of operation, and if it finds substantial business activities in Singapore (such as a physical office or a server set up), it still requires holding a DTSP license.

Situation 4: Providing services to local customers in Singapore

This scenario needs no elaboration; regardless of how the new regulations change, those providing encryption asset services to Singapore residents have long had to operate with a license. The new regulations simply further seal the loopholes in cross-border services.

Compliance Recommendations: Three Steps to Steady the Course

In the face of the upcoming new regulations, web3 organizations and practitioners need to seize the key points and take action. Here are three practical suggestions to help you cope with the changes:

1. Understand the business fundamentals

First, clarify which category the business model belongs to and whether a license is needed.

2. Prepare the license application in advance

If you decide to stay in Singapore for development, prepare for the MAS DTS license application as early as possible.

3. Consider migration options

If compliance costs are too high, consider looking elsewhere, such as other countries in Asia or even Europe or the Middle East.

Opportunities and challenges coexist, don’t be scared away by the new regulations.

Singapore’s new encryption regulatory rules seem to impose a “tightening spell” on the industry, but from another perspective, this is also an opportunity. For large institutions with sufficient strength and budget, compliance may be the necessary path to attract more funds into the encryption market; while for relatively smaller institutions and teams, timely adjustments in strategy and finding the right positioning can also lead to a successful opportunity for compliant transformation.