Non-Fungible Tokens (NFTs)

Regulation status: NFTs are not a regulated asset class in Singapore by the Monetary Authority of Singapore (MAS), since they are not considered legal tender in Singapore, unlike currency notes and coins issued by the MAS. NFTs, as a result, are not recognised as an approved mode of payment for goods and services. Due to the non-fungible nature of the NFTs, NFTs do not constitute Digital Payment Tokens (“DPTs”) under the Payment Services Act (No.2 of 2019) (“PS Act”), which regulates cryptocurrency service providers and DPTs.  

Exemption under the PS Act: Under the PS Act, 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:

Any nonmonetary customer loyalty or reward point(s), any ingame asset(s) or any similar digital representation of value that:

1. cannot be returned to its issuer, transferred or sold in exchange for money; and
2. may only be used:

• • • in the case of nonmonetary 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 ingame 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”.

Based on the definition provided above, it is likely that NFTs may fall within the scope of limited purpose digital payment tokens, which are exempted from the application of the PSA.

Characteristics & features of the NFTs: NFTs that are pegged to art works where ownership in those art works is being fractionalised and would constitute asset-backed tokens. Artists should consider what features the minted NFTs would have. If the minted NFTs are limited to dividing ownership in the art works, and is not intended to be used for investment purposes, it is unlikely to constitute as “Capital Markets Products” that fall within the ambit of the Securities and Futures Act (Cap.289) (“SFA”).

However, if the NFT is minted in a way that the original NFT issuer (i.e. artist) would receive a share of proceeds each time their NFTs are sold, with the artist retaining the ability to sell such a right to future proceeds on a secondary market, the NFTs may fall within the ambit of the SFA. 

Intellectual Property: Artists should also consider how the fractionalising of ownership in the artwork affects their ownership and enforcement of copyright rights. It is good practice to read the terms and conditions of NFT minting platforms to ascertain if there are any pre-determined limitations on copyright rights. 

While MAS does not explicitly regulate NFTs, it still considers whether or not it constitutes a capital markets product. 

According to MAS (Parliamentary replies)
Last revised 15 February 2022

MAS does not and cannot possibly regulate all things or products that people choose to invest their money in. We consider the substance of an asset when assessing whether a product or activity should come under MAS’ regulatory remit. MAS does not currently regulate NFTs given the nature of their underlying assets, such as the few examples earlier. This is also the stance taken by most other leading jurisdictions.

More fundamentally, with regard to digital tokens such as NFTs, MAS takes a tech-neutral stance and “looks through” to the underlying characteristics of the token to determine if it is to be regulated by MAS. Should an NFT have the characteristics of a capital markets product under the Securities and Futures Act (SFA), it will be subject to MAS’ regulatory requirements. For example, should an NFT be structured to represent rights to a portfolio of listed shares, it will like other collective investment schemes be subject to prospectus requirements, licensing and business conduct requirements.

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

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.

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

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

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

Yes, but not yet.

According to MCI (Parliamentary QAs)
last revised on 11 January 2022

28. Mr Yip Hon Weng: To ask the Minister for Communications and Information (a) how prevalent are new frontiers of technology such as Metaverse and non-fungible tokens in real-life applications in Singapore; (b) whether the Government has plans to regulate such technologies; and (c) how can regulations be administered considering the borderless nature of virtual reality.

Answer:

1. New technologies such as the Metaverse and Non-Fungible Tokens (NFTs) are at a nascent stage of development, especially in terms of their translation to real or physical world applications. Alongside related technologies such as augmented and virtual reality, blockchain and decentralised financing, the Metaverse and NFTs present potential for people and businesses to extend their activities and asset ownership into the virtual world. 

2. As these technologies are still at relatively early stages of application, it remains to be seen how they will be structured and organised. The Government is closely studying their characteristics and attendant implications and risks. For example, the immersive, interactive, decentralised or anonymity elements of these technologies have the potential to be harnessed to either strengthen or pose risks to online safety, consumer protection, privacy, and protection of intellectual property.