The Monetary Authority of Singapore (MAS) has announced a package of reforms intended to enhance consumer protections for users of Digital Payment Token (DPT) service providers, including requirements to deposit and keep all customer assets under a statutory trust. In addition, the MAS is expected to restrict service providers from providing token lending and staking services to retail investors. Under the proposals, DPT service providers will be able to continue providing such services to institutional and accredited investors.
In a media release, the MAS announced that the new rules will:
mitigate the risk of loss or misuse of customers’ assets, and facilitate the recovery of customers’ assets in the event of a DPT service provider’s insolvency.
The new rules follow public consultations in late 2022 on regulatory measures to enhance investor protection and market integrity for crypto services. In particular, the consultation revealed widespread support for DPT service providers to:
segregate customers’ assets from its own assets and held in trust;
safeguard customers’ moneys;
conduct daily reconciliation of customers’ assets and keep proper books and records;
maintain access and operational controls to customers’ DPTs in Singapore;
ensure that the custody function is operationally independent from other business units; and
provide clear disclosures to customers on the risks involved in having their assets held by the DPT service provider.
While some responses supported the restrictions on token lending and staking, agreeing that it is unsuitable for retail investors due to DPTs high-risk and speculative nature, other respondents argued that concerns can be mitigated via sufficient risk disclosures and customer’s consent. The MAS has promised to:
monitor market developments and consumer risk awareness as these evolve, and will take steps to ensure that our measures remain balanced and appropriate.
The MAS is currently accepting public responses on draft legislative amendments to the Payment Services Regulations to implement the proposed changes. Further guidelines to assist consistent adoption of the above requirements are anticipated in the near future.
Finally, the MAS issued a further consultation paper to consult on new requirements to address unfair trading practices in crypto markets and prevent market abuse. Responses to the paper are also due on 3 August 2023.
The MAS reiterated its past warnings to consumers in announcing the new rules:
Regulations alone cannot protect consumers from all losses…consumers must continue to exercise utmost caution when trading in DPTs.
The latest rules follow Singapore's consistent approach of seeking to embrace the benefits of digital money and blockchain technology while mitigating potential consumer harms, particularly for retail investors. The latest changes follow a raft of policy developments around the region, as jurisdictions like Hong Kong and South Korea, also seek to establish more comprehensive fit-for-purpose regulations for digital assets.