Singapore Looks to Reduce Consumer Risk of Crypto Trading, Encourages Stablecoins with New Rules

-Retail Investors May Be Banned from Using Leverage in Crypto Trading

-Banks Allowed to Issue Stablecoins

The Monetary Authority of Singapore (MAS) has proposed new initiatives aimed at mitigating risk to consumers in regard to crypto trading.

At the same time, MAS has proposed new regulators designed to encourage stablecoins as a “credible medium of exchange.”

Singapore has long been a hotbed of digital asset innovation. The top Fintech Hub in Asia, in recent months, Singapore has messaged its concerns about crypto trading and retail investors.

MAS states:

“Trading in cryptocurrencies (known as digital payment tokens or DPTs) is highly risky and not suitable for the general public. However, cryptocurrencies play a supporting role in the broader digital asset ecosystem, and it would not be feasible to ban them. Therefore, to reduce the risk to consumers from speculative trading in cryptocurrencies, MAS will require that DPT service providers ensure proper business conduct and adequate risk disclosure.”

The proposal incorporates three measures:

  • Consumer Access.  DPT service providers will be required to provide relevant risk disclosures to enable retail consumers to make informed decisions regarding cryptocurrency trading.  They must also disallow the use of credit facilities and leverage by retail consumers for cryptocurrency trading.
  • Business Conduct.  DPT service providers will be required to implement proper segregation of customers’ assets, mitigate any potential conflicts of interest which arise from the multiple roles they perform, and establish processes for complaints handling.
  • Technology Risks. Similar to other financial institutions such as banks, DPT service providers will be required to maintain high availability and recoverability of their critical systems.

MAS echoed prior statements warning consumers of potential losses when trading crypto.

Simultaneously, MAS issued a statement embracing stablecoins, privately issued fiat-backed digital assets that can be used as a method of value transfer, including in payments. MAS said that, provided appropriate regulation, stablecoins have the potential to become a medium of exchange.

MAS stated that it will regulate the issuance of stablecoins which are pegged to a single currency (SCS) where the value of SCS in circulation exceeds S$5 million.

All stablecoins must be backed by “reserve assets in cash, cash equivalents or short-dated sovereign debt securities [1] that are at least equivalent to 100% of the par value.” These assets must be denominated in the same currency as the digital asset. As well, only G10 currencies will be approved – plus the Singapore dollar. Banks will be allowed to issue stablecoins without additional reserve backing.

Ho Hern Shin, Deputy Managing Director (Financial Supervision), MAS, commented on the statement:

“The two sets of proposed measures mark the next milestone in enhancing Singapore’s regulatory approach to foster an innovative and responsible digital asset ecosystem. Regulations go hand-in-hand with innovation in financial services. The enhanced regulatory regime for stablecoins aims to support the development of value-adding payment use cases for stablecoins in Singapore.  As we continue to partner industry players to explore the potential benefits of tokenisation and distributed ledger technology, MAS will make appropriate adjustments to its regulatory regime to address the associated risks.”

MAS asks interested parties to submit comments on the proposals by December 21, 2022.

Consultation Paper on Proposed Regulatory Measures for Digital Payment Token Services

Consultation Paper on Proposed Regulatory Approach for Stablecoin-Related Activities

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