Binance's compliance process has faced setbacks in Singapore, prompting a shift in focus to Indonesia and the Middle East

Author: Resty Woro Yuniar; Dewey Sim

Compiled by: Hu Tao

Earlier this year, when the Singapore central bank greenlit digital payment token services for three entities, including cryptocurrencies, it garnered significant attention.
Observers at the time indicated that this move would solidify Singapore's position as Asia's leading crypto financial hub and could herald a wave of crypto-related businesses relocating to the city-state. This prediction came true, as several companies, including Huobi, China's largest cryptocurrency exchange, established regional headquarters in the island nation.
Although Singapore is largely viewed as a welcoming place for cryptocurrencies, with regulators taking an open approach to experimentation, analysts noted that a major trading platform's decision to cease operations in the republic could slightly shift market sentiment.
Last week, Binance's Singapore division announced that it had withdrawn its application for a license to provide crypto services and would shut down its fiat and crypto trading platform by mid-February.
Binance CEO Changpeng Zhao stated in a tweet on December 13 that the company's investment in regulated exchanges made its application "somewhat redundant."
However, subsequent reports indicated that the world's largest cryptocurrency exchange was unable to meet Singapore's standards for preventing money laundering and terrorist financing. Analysts suggested that this exit implies that the regulatory barriers in Singapore's crypto industry are much greater than the company initially anticipated.
"They thought the regulatory environment was straightforward, but once they started to enter the space, they realized it was very burdensome," said Sumit Agarwal, a finance and economics professor at the National University of Singapore (NUS).
Analysts noted that with Singapore's stricter standards, companies might look towards other Asian economies like Indonesia or opt for regions like the Middle East with more lenient rules.
Small Market, Strict Regulations
Antonio Fatas, an economics professor at INSEAD, believes that Binance's exit may be due to Singapore's stringent regulations, pointing out that the company allowed investors to access "complex assets that are riskier than those on other platforms."
However, Chia Hock Lai, co-chairman of the Singapore Blockchain Association, stated that business considerations might influence the company's decision, such as the relatively small retail market of the city-state. He noted that Singapore has clear but strict requirements for its crypto licenses, including performance records, sustainability of business models, and key personnel.
"I can imagine that the competitive landscape or value proposition they initially thought was not suitable for them," Agarwal from NUS added.
He mentioned that the Singapore central bank is particularly concerned about issues surrounding data security. For instance, some companies can leverage customers' phones to view the applications they use, which in turn helps them analyze consumer risk profiles.
"Now, they have to explain to regulators why they are using it, what the requirements around that data are, and what value they derive from obtaining that data from customers," Agarwal explained.
"They quickly realized that they couldn't use certain data because it was illegal or unauthorized, so they had to rethink." The professor also pointed out that the cryptocurrency landscape in Singapore may have already experienced turbulence.
Initially, the Monetary Authority of Singapore was "very open" to exploring this space. But now, with the development of its central bank digital currency, regulators are experiencing "direct conflict and competition" with private crypto companies.
"As a result, the central bank stated that it needs to conduct stricter scrutiny of what these companies are doing and issuing, how they manage portfolios, and who can buy and sell," Agarwal said.
Fatas from INSEAD also echoed Agarwal's views, stating that the current regulation has been "fragmented and possibly not strict enough," prompting Singapore to expand its scrutiny of the industry.
The ongoing volatility of cryptocurrencies also reveals how they should be used more as investment tools rather than trading instruments.
Agarwal added that this also affects how regulators behave, as they are concerned that if consumers invest too much in cryptocurrencies, they might lose their savings.
Currently, only three entities—DBS Vickers, fintech firm Fomo Pay, and Australian crypto exchange Independent Reserve—have obtained licenses to provide digital payment token services. Last year, around 170 companies applied for licenses, but according to the Monetary Authority of Singapore's website, only 70 applicants received exemptions while their applications were being processed.
Chia from the Singapore Blockchain Association stated that Binance's withdrawal might undermine the perception of the city-state as crypto-friendly. However, he emphasized that Singapore remains one of the countries providing the best regulatory clarity for crypto activities, along with benefits like low taxes and talent.
He added that not all crypto activities, including NFTs, blockchain gaming, and the metaverse, are regulated.
Fatas noted that Singapore does not harbor hostility towards the crypto ecosystem, but there are limits to how much risk and exposure to fraud it can tolerate.
Indonesia Pivot
Despite regulatory setbacks, Binance is attempting to enter the Indonesian market, where the number of crypto traders has been increasing.
The company announced on December 15 that it is negotiating with PT Bank Central Asia (Indonesia's largest private bank) and MDI Ventures (the investment arm of state-owned telecommunications provider PT Telkom) to create a new digital asset trading platform and expand cryptocurrency adoption in Southeast Asia's largest economy.
The Cayman Islands-based company acquired a controlling stake in local crypto exchange Tokocrypto last May for an undisclosed amount, but was forced to halt operations on its own platform in October of the same year due to a lack of operational licenses.
The government has established a series of rules allowing blockchain companies to operate as limited liability companies in Indonesia, including registering their legal domicile in the country and obtaining a tax identification number.
Regarding Binance's plans, Tongam Tobing, head of the investment alert task force at the country's Financial Services Authority, stated that the agency will "support all business activities that legally contribute to promoting the Indonesian economy." According to OJK data, Indonesia currently has 13 registered crypto trading platforms.
"Indonesia is part of Binance's long-term growth plan, as the number of crypto traders has grown exponentially in recent years," Askar said, "with over half of the population still unbanked, which aligns well with crypto companies as they seek to eliminate barriers to accessing traditional banking or financial services."
Data from the Commodity Futures Trading Regulatory Agency shows that from January to July 2021, Indonesia had about 7.4 million crypto traders, doubling from the same period last year. Crypto trading worth 650 trillion rupiah (approximately $45.3 billion) continued until September.
Despite the potential, Askar noted that Indonesian banks and financial institutions may take a wait-and-see approach before entering the cryptocurrency world. "There are many assumptions that cryptocurrencies will have a significant impact on the stability of the economy and banking sector," he said.
Earlier, Binance founder Changpeng Zhao stated that his collaboration with Indonesia could transform the country into "one of the leading centers for blockchain and crypto ecosystems in Southeast Asia."
However, Askar stated that to foster industry growth, the government needs to consider the flexibility of other countries in balancing blockchain-based innovation with existing regulations.
Unequal internet access may also hinder the widespread adoption of cryptocurrencies in Indonesia, where only about 73% of the population is online. "But policymakers will consider public debates about cryptocurrencies, as many people are now questioning the safety of crypto investments."
Complementary Crypto Hubs
While Asia strives to balance regulatory reforms and investments, attention is turning to the Middle East. Binance's Changpeng Zhao stated last month that he bought his first home in Dubai, describing the city as "very supportive of cryptocurrencies."
He added that crypto players who relocate to Singapore and pass regulatory tests will be seen as "more legitimate" than those who choose the Middle East. Chia from the Singapore Blockchain Association noted that the two jurisdictions have unique value propositions that can complement each other rather than compete.
Nevertheless, Agarwal emphasized that as policymakers continue to assess the rapidly growing market, the crypto space and its regulations remain unstable.
"The government is still evaluating whether this is a market they want to enter, so the regulatory environment in many countries will continue to change," he said.