The Monetary Authority of Singapore (MAS) has proposed new measures regulating cryptocurrency exchanges and retail crypto offerings as well as addressing the risks associated with fiat-backed stablecoins.
On 26 October, the MAS - the central bank and financial regulatory authority of Singapore - issued two consultation papers. The first paper outlines proposed new measures to protect consumers and which the MAS says are intended to curb cryptocurrency speculation. These include:
requiring retail investors to undertake a risk awareness assessment before trading cryptocurrencies;
restrictions on offering incentives to retail investors to trade cryptocurrencies;
restricting retail investors from using credit or leverage to trade cryptocurrencies (including credit cards to purchase cryptocurrency);
requiring exchanges to segregate customer assets from their own assets (and, potentially, appoint an independent custodian);
prohibitions on lending or borrowing retail user's crypto-assets, effectively banning consumers from so-called "earn-type" or staking products (following a number of high profile insolvencies involving businesses which offered these products);
requiring crypto exchanges to identify and mitigate conflicts of interest; and
requiring exchanges take steps to address market misconduct by implementing systems and procedures to encourage a fair, orderly and transparent market.
MAS explained its rationale for ramping up consumer protections:
Trading in cryptocurrencies...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...proper business conduct and adequate risk disclosure.
The second paper proposes a new regime to regulate and support the development of credible and reliable stablecoins that facilitate digital transactions. Proposed regulations would target stablecoins whose value in circulation exceeds SG$5 million (about US$3.54million). The proposed measures would create a class of MAS licensed single currency stablecoins (or SCS). Key measures include:
stablecoin issuers must hold reserve assets (e.g. cash) at least 1:1 of value in circulation and provide timely redemption to customers;
regulated stablecoins must be pegged to a single currency;
stablecoin issuers will be required to publish a white paper, and
stablecoins issuers must meet a base capital requirement.
In addition, banks in Singapore would be allowed to issue stablecoins with no additional reserve backing and prudential requirements in light of existing banking regulations.
The MAS is also seeking views on whether it should reserve the power to designate a systemic stablecoin arrangement as a designated payment system.
In a statement, MAS expressed its continued support for stablecoin development:
Stablecoins have the potential to be a medium of exchange to facilitate transactions in the digital asset ecosystem, provided they are well-regulated and securely backed. The current regulatory framework...will be expanded to ensure that regulated stablecoins have a high degree of value stability.
Consultations on both papers are open until 21 December 2022. MAS intends to implement the new measures as part of the Payment Services Act, which introduced Singapore's licensing regime for cryptocurrency exchanges.
The consultation papers follow recent comments by the MAS which indicated the city-state's intention to support tokenisation and the growth of the digital assets industry, while addressing potential consumer harms.
Some critics have voiced concerns that the proposed consumer protections may be overly prescriptive, and that the prohibition on purchasing tokens using credit or leverage could inadvertently encourage retail investors to trade in crypto derivatives. The proposed prohibition on offering earn or staking products would ban even regulated entities from offering these products while encouraging retail users to seek out unregulated DeFi or foreign offerings. Meanwhile, Singapore is likely to encounter the same limitations faced by other jurisdictions in monitoring and controlling trading by its citizens on overseas platforms.
These proposals nevertheless demonstrate Singapore's determination to cement its status as an international hub for cryptocurrency development and fintech innovation. With the EU's MiCA regime on the horizon, Singapore will likely join the EU at the forefront of cryptocurrency regulation and attract attention from legislators around the world as they craft their own regulatory regimes.