In November, XREX, a cross-border virtual asset exchange founded in Taiwan, received the “Major Payments Institution” license from the Monetary Authority of Singapore (MAS). This approval covers 6 business categories, including the crucial Digital Payment Token (DPT) classification, undoubtedly enabling XREX to achieve a significant breakthrough in cross-border encrypted payments.
Background:
XREX collaborates with Unitas to host the Stablecoin Summit Singapore 2023 in Singapore.
Table of Contents:
Thinking like a financial industry participant in the cryptocurrency industry
Founder Winston: XREX is now an international financial institution
Country-specific encryption and Taiwan’s future laws and licensing system
XREX co-founder and Group Revenue Officer Winston Xiao expressed his satisfaction and fulfillment in an interview with Dynamic Zone. After a 2.5-year journey focusing on cross-border cryptocurrency payment business, XREX obtained the principle approval for the “Major Payments Institution” (MPI) license in Singapore. How many challenges did XREX overcome to achieve this?
Looking globally, under the regulatory framework of various countries, cryptocurrency payments have transitioned from the “wild west” era before 2020 to compliance with regulations, asset custody, cybersecurity, and compliance standards similar to traditional financial institutions. This gradual transition has filled the gaps in the traditional institutional landscape.
In 2019, Singapore passed the Payment Services Act, integrating virtual asset and payment service providers and classifying payment licenses into 7 business categories. Over the past three years, nearly a thousand VASPs from various countries have applied for licenses. However, only 15 companies have been approved for the Digital Payment Token (DPT) business category. In this interview, XREX shares how it obtained the principle approval for the “Payments Institution” license for 6 business categories in Singapore.
In the current Financial Action Task Force (FATF) regulations, entities providing cryptocurrency services are defined as Virtual Asset Service Providers (VASPs). This has resulted in different approaches to regulation between countries, with some countries integrating virtual assets into their payment service provider regulations. Among them, Singapore took the lead in 2019 by including cryptocurrency services under payment service provider regulation.
Nick Zhang, XREX’s group compliance executive responsible for overcoming Singapore’s licensing requirements, stated, “With my compliance experience in international banks and entering the financial industry as a cryptocurrency service provider, my role at XREX is unique. From the compliance perspective, even the CEO’s influence cannot affect my judgment. I began evaluating what types of businesses would be accepted by regulatory authorities when they started supervising cryptocurrency businesses.”
“XREX’s thinking from the beginning was based on the financial industry. Since joining, I have been researching various regulations and considering what kind of regulatory framework would be acceptable to governments,” emphasized Nick. XREX has prepared for smooth payment flows from fiat currency deposits to cryptocurrency exchanges, payments, and back to fiat currency. In terms of compliance, licensing, internal risk control, KYC, anti-money laundering, cybersecurity, and fund custody, Nick believes these areas can be highly validated by traditional financial institutions. The government expects breakthroughs from startups, while also testing whether companies can maintain a balance and prevent illicit and unidentified funds from using cryptocurrency as an easy gateway.
XREX co-founder and Group Revenue Officer Winston Xiao was pleasantly surprised by the rigorous risk control standards required by the Monetary Authority of Singapore during the licensing process, as this demonstrated that Singapore views virtual currency providers as “financial institutions” rather than “financial-like entities.” This aligns perfectly with XREX’s development direction.
Winston stated, “When I conducted research, I found that Singapore believed that cryptocurrencies could be used as payment tools and even play a role in cross-border trade. I clearly explained to them that we can provide fiat currency, stablecoins, and cryptocurrencies for payments, which are our strengths.” Choosing to apply for a license in Singapore, which has a significant international financial position, became a crucial entry point for XREX to tap into the cryptocurrency payment market.
Virtual asset service providers frequently collide with global regulations, with the main pain point being the integration with the traditional financial system. Examples of cooperation between VASPs and traditional banks, from basic fiat currency exchanges to custody, are scarce. Singapore’s Major Payments Institution (MPI) license has become a unique positioning license. Winston commented on the inclusion of the Digital Payment Token (DPT) business category, stating, “In the international scope, regulatory authorities and financial systems from many countries highly recognize this license. Therefore, banks are willing to integrate with you, and the willingness to provide cryptocurrency services to end-users increases significantly.”
After a long and time-consuming process to obtain a financial license in Singapore, XREX received the principle approval at the end of 2023. This approval is like a heartwarming gift during the winter. XREX, which previously focused on import and export settlement requirements in emerging countries, now seamlessly connects users’ financial flows with Singapore’s financial system. This advancement also brings XREX’s participation in the Unitas product, a multi-country unit of account, and its cryptocurrency check, BitCheck, closer, eliminating the need for local fiat currency exchanges and enabling direct money transfers between the two countries, saving time on traditional wire transfers and fund settlements. XREX is currently in discussions with several multinational banks, but the specific bank willing to provide custody and fiat currency exchange services has not been disclosed at this stage.
Winston happily stated, “The characteristics of virtual currencies can effectively assist in addressing the time-consuming and manual verification procedures of traditional finance. With the MPI license from Singapore, XREX can become a hub for financial flows that can be used by peers, thereby helping users deposit US dollars in multiple countries.”
Singapore’s regulations have attracted blockchain and financial talents from around the world, similar to how Dubai, UAE, has attracted a large number of VASPs. As a pioneering experimental role in the domestic market, Taiwanese cryptocurrency companies can act as demonstration objects in the eyes of regulators, as the Financial Supervisory Commission, industry players, and legislators have all become energized and actively observed and adjusted regulations, establishing principles at the right time.
From a compliance perspective, Nick believes that the attributes that differentiate VASP companies still need to be classified and explained. He does not believe that Taiwan necessarily needs to adopt a similar special law like Singapore. He views the current flexibility provided by regulators to VASP companies as a positive sign. Through preparatory groups, associations, and self-regulations, the ideas of VASP companies are gradually consolidated. While maintaining communication with the Financial Supervisory Commission, defining principles will be clarified and a comprehensive special law will be established, which will have the greatest significance.
Winston stated that XREX is willing to share resources and cooperate with peers, which is part of XREX’s culture. With the MPI license from Singapore, XREX can become a hub for financial flows that can be used by peers. This may help users deposit US dollars in multiple countries.
The rules of the Monetary Authority of Singapore have attracted blockchain and financial talents from around the world, and Dubai, UAE, has also attracted a large number of VASPs. Taiwanese cryptocurrency companies, as pioneers in the domestic market, can act as demonstration objects that comply with the bottom line of regulations. After the supervisory authorities summarize the capabilities of the industry, they can determine what is feasible and what should be restricted by regulations. Ultimately, the domestic regulations can be designed to create a fertile ground with sufficient financial conditions, attracting a large number of international talents and industries to settle in Taiwan.
Nick expressed a slight regret, but it is still important to uphold the standards of the financial industry. He hopes that cryptocurrency companies can also establish internal controls at the level of financial institutions. The XREX executives present in the interview simultaneously admitted with a smile, “We are very hardcore!”
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