Fintech & Blockchain Technology

Blockchain technology has been hailed as the future of transactions because it promises total security and integrity of information in an age of hacking and online fraud. The blockchain originally devised for the digital currency known as Bitcoin provides a transparent ledger that tracks and records transactions on a database distributed across a network of computers (nodes) rather than a single location. Since the blockchain cannot be controlled by a single entity and does not have a single point of failure, it ensures that data cannot be tampered with unless each node receives the correct verification of the authenticity of the transaction. Once the transaction and user’s status have been verified by using known algorithms to solve a computational puzzle, the transaction creates a new “block” of data in the permanent and unalterable ledger chain. Since its original use for cryptocurrencies, blockchain technology has been used in numerous other ways, including smart contracts, smart bonds, asset management, insurance claims processing, smart property transactions, money lending, smart appliances, supply chain sensors, intellectual property rights for music, voting platforms and public ledgers recording births, deaths and marriages.

Blockchain’s assurance of incorruptibility led technology companies to realise its potential for use in raising startup capital. Thus, the birth of the initial coin offering or “ICO,” whereby the investor is issued a crypto coin or token rather than a share of the company in return for investment. The ICO requires a blockchain and set of rules and protocols to issue new cryptographically secure coins or tokens (digital certificates) that are easy to transfer peer-to-peer. The blockchain is also needed to record who owns the tokens and any transactions that are undertaken on exchanges.

Singapore is attractive to potential ICO launchers since the Monetary Authority of Singapore (MAS) has issued guidance on digital token offerings and has a Fintech Regulatory Sandbox aimed at actively encouraging such financial innovations, unlike some countries (China and South Korea) that have banned ICOs outright due to the perceived risk of fraud involved. The MAS Sandbox allows startups to experiment, within a well-defined space and limited duration, with financial products or services that do not clearly fit within existing legal and regulatory requirements. However, such products should include appropriate safeguards to minimize the risk of failure and consequential impact on the existing financial system.

Lawyers in the Duane Morris & Selvam Fintech Practice have increasingly provided regulatory and corporate advice to clients with issues related to blockchain technology and ICOs. Our attorneys have a significant experience with the regulatory concerns surrounding ICOs in Singapore and the MAS’s current position on digital token offerings and the regulatory sandbox. The team also has deep understanding and experience with the fundamentals to successful ICOs, and frequently:

  • Advises on structuring of the token issuer vis-à-vis the operating company;
  • Reviews whitepapers and other marketing materials for compliance with Singapore laws, particularly in relation to KYC/AML/CTF requirements;
  • Drafts terms and conditions for the public sale of tokens;
  • Drafts the privacy policy for the token issuer;
  • Drafts pre-ICO token sale agreements;
  • Coordinates with foreign counsel to prepare pre-ICO token sale agreements based on foreign laws;
  • Provides general corporate law services, including drafting legal memoranda; and
  • Offers advice on compliance, crowdfunding, securities law and data privacy law.