Significant Shift in Singapore's Web3 Regulatory Environment

Singapore, with its flexible regulatory environment, has always been the preferred destination for many Web3 companies, earning the title of "the Delaware of Asia." However, a recent series of high-profile company collapses has exposed the loopholes in the existing regulatory system, prompting the Monetary Authority of Singapore ( MAS ) to adopt stricter regulatory measures.

In 2025, MAS will launch the digital Token service provider (DTSP) framework, requiring all companies providing digital asset services in Singapore to obtain a license. This initiative means that simply being registered as a company in Singapore will no longer be sufficient to conduct digital asset business.

Although Singapore continues to support innovation, regulatory scrutiny has significantly increased. The government has imposed higher accountability and compliance requirements on Web3 companies. In light of this change, Web3 companies in Singapore need to enhance their operational capabilities or consider relocating their businesses to other jurisdictions.

The Evolution of Singapore's Regulatory Environment

For a long time, Singapore has been favored by global enterprises due to its clear regulations, low tax rates, and efficient company registration processes. This business-friendly environment has naturally attracted a large number of Web3 companies. The MAS recognized the potential of cryptocurrencies early on and actively developed relevant regulatory frameworks, creating favorable conditions for the development of Web3 companies.

The "Payment Services Act" issued by MAS (PSA) brings digital asset services under clear regulatory oversight and introduces a regulatory sandbox, allowing companies to experiment with new business models under specific conditions. These measures significantly reduce uncertainty in the early market, making Singapore a hub for the Web3 industry in Asia.

However, the policy direction in Singapore has recently changed. The MAS has gradually tightened regulatory standards and revised relevant frameworks. Data shows that since 2021, the approval rate for over 500 license applications has been less than 10%. This indicates that the MAS has significantly raised the approval standards and adopted a more cautious risk management strategy with limited regulatory resources.

DTSP Framework: Background and Changes

Reasons for tightening regulation

Singapore has attracted a large number of Web3 companies through flexible regulations and a regulatory sandbox in its early days. However, the limitations of the existing system are gradually becoming apparent, especially with the prevalence of the "shell company" model. Some businesses register entities in Singapore but operate overseas, exploiting regulatory loopholes in the PSA to evade regulation.

This structure makes law enforcement against anti-money laundering ( AML ) and counter-terrorism financing ( CFT ) difficult. The Financial Action Task Force ( FATF ) refers to this as the "offshore virtual asset service provider ( VASP )" structure and warns that it may lead to global regulatory loopholes.

In 2022, the collapse of several high-profile companies brought these issues to reality. These companies were registered in Singapore but operated overseas, making it impossible for the MAS to effectively regulate or enforce, resulting in huge losses and damage to Singapore's regulatory reputation.

Main Changes in DTSP Regulations

The DTSP framework will be implemented on June 30, 2025, and is part of the Financial Services and Markets Act ( FSMA 2022). The new regulations aim to address the limitations of the PSA, requiring all digital asset companies based in Singapore or conducting business in Singapore to obtain a license, regardless of where their users are located.

MAS clearly stated that it will not issue licenses to companies lacking substantial business foundations. Companies that fail to meet the requirements must cease operations before the deadline. This marks Singapore's long-term transformation into a trust-centered digital financial hub.

Redefinition of Regulatory Scope under the DTSP Framework

The DTSP framework requires digital token service operators in Singapore to comply with stricter regulatory requirements. Any business that is considered "based in Singapore" must obtain a license, regardless of the location of its users or organizational structure.

This change involves various types of businesses, including companies registered in Singapore but operating entirely overseas, as well as companies registered overseas but with core functions in Singapore. Even Singapore residents participating in projects on a continuous business basis may need to comply with DTSP requirements.

Operators need to have substantial operational capabilities, including AML, CFT, technical risk management, and internal controls. Companies need to assess whether their activities in Singapore are regulated and whether they can maintain their business under the new framework.

Summary and Outlook

Singapore's DTSP regulations reflect a shift in the regulatory attitude towards the cryptocurrency industry. The MAS is no longer just providing a flexible policy environment, but is requiring companies to take on greater responsibilities and adhere to stricter discipline.

This change means that operators must fundamentally adjust their business models in Singapore. Companies that cannot meet the new standards may need to consider adjusting their operational frameworks or relocating their business bases. Places like Hong Kong, Abu Dhabi, and Dubai are developing their own crypto regulatory frameworks, which may become alternative options for some companies.

However, these jurisdictions also require locally operated services to obtain licenses, involving capital requirements, AML standards, and substantive operational rules. Therefore, companies should regard migration as a strategic decision, rather than a simple regulatory evasion.

Singapore's new regulatory framework may increase market entry barriers in the short term, but it also indicates that the future market will be restructured around operators with sufficient responsibility and transparency. The effectiveness of this system will depend on whether these structural changes are sustainable and consistent. In the future, the interaction between institutions and the market will determine whether Singapore can continue to be recognized as a stable and reliable business environment.