New Singapore Web3 Regulation Landscape: Transformations and Challenges under the DTSP Framework

Summary

Singapore has attracted numerous Web3 companies with its flexible regulatory environment, earning the title of "the Delaware of Asia". However, the surge of shell companies and the collapse of some high-profile enterprises have exposed the shortcomings of the existing regulatory framework.

In 2025, the Monetary Authority of Singapore ( MAS ) will implement the Digital Token Service Provider ( DTSP ) framework. By then, all companies providing digital asset services in Singapore must obtain a license, and mere registration will no longer be sufficient to conduct digital asset business.

Although Singapore continues to support innovation, regulatory oversight has significantly increased. The government has imposed higher accountability and compliance requirements on businesses. Web3 companies in Singapore need to develop substantial operational capabilities or consider relocating their business to other jurisdictions.

1. The Evolution of the Regulatory Environment in Singapore

For a long time, Singapore has attracted global businesses due to its clear regulations, low corporate tax rates, and convenient registration processes. This business-friendly environment has naturally become an ideal choice for Web3 companies. The MAS recognized the growth potential of cryptocurrencies early on and proactively established a regulatory framework, providing space for Web3 companies to operate within the existing system.

MAS has issued the Payment Services Act ( PSA ), which incorporates digital asset services into a clear regulatory framework and introduces a regulatory sandbox that allows companies to experiment with new business models under specific conditions. These measures reduce the uncertainty in the early market, making Singapore a hub for the Web3 industry in Asia.

However, there has been a change in the policy direction in Singapore recently. The MAS has gradually tightened regulatory standards and revised its framework. Data shows that since 2021, the approval rate for over 500 license applications has been below 10%. This indicates that the MAS has significantly raised the approval standards and adopted stricter risk management measures under limited regulatory capacity.

2. DTSP Framework: Background and Changes

Background of tightening regulation 2.1

Singapore initially attracted a large number of Web3 companies through flexible regulations and sandboxes. However, the limitations of the existing system are gradually becoming apparent. A key issue is the "shell company" model, where businesses register entities in Singapore but operate overseas, exploiting regulatory loopholes in the Payment Services Act (PSA).

This structure makes law enforcement against anti-money laundering ( AML ) and counter-terrorist financing ( CFT ) difficult. The Financial Action Task Force ( FATF ) warns that inconsistencies between the registration and operational locations lead to global regulatory loopholes. The collapse of certain high-profile companies in 2022 brought these issues to light, resulting in significant losses and damage to Singapore's regulatory reputation.

Key Changes and Impacts of DTSP Regulations 2.2

The MAS will implement new DTSP regulations starting from June 30, 2025, under the Financial Services and Markets Act ( FSMA 2022). The new regulations aim to address the limitations of the PSA. The DTSP framework requires all digital asset companies based in Singapore or conducting business in Singapore to obtain a license, regardless of where their users are located.

MAS has clearly stated that it will not issue licenses to companies without a substantial business foundation. Companies that do not meet the requirements by June 30, 2025, must cease operations immediately. This is not just a temporary enforcement action, but a signal of Singapore's long-term transformation into a trust-centered digital financial hub.

3. Redefinition of Regulatory Scope under the DTSP Framework

The DTSP framework requires digital token service operators in Singapore to comply with clearer regulatory requirements. MAS requires any entity considered "based in Singapore" to obtain a license, regardless of the location of its users or organizational structure.

Key examples include: companies registered in Singapore but operating entirely overseas; and companies registered overseas but with core functions in Singapore. Even Singapore residents participating in the project on a continuous business basis may be required to comply with DTSP requirements.

These changes not only expand the scope of regulation but also require operators to have substantial operational capabilities, including AML, CFT, technical risk management, and internal controls. Operators need to assess whether their activities in Singapore are regulated and whether they can sustain their business under the new framework.

4. Summary

The DTSP regulations in Singapore indicate a shift in the attitude of regulators towards the crypto industry. The MAS has shifted from a flexible policy to imposing clear responsibilities on entities with a substantive business presence in Singapore. Operators must fundamentally adjust their operations in Singapore.

Companies that cannot meet the new regulatory standards may face the choice of adjusting their operational framework or relocating their business base. However, other jurisdictions also have similar requirements, and companies should view relocation as a strategic decision, taking into account regulatory intensity, regulatory methods, and operational costs.

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