The Monetary Authority of Singapore (MAS) published today (October 28) two consultation papers, including proposals for regulatory measures for Digital Payment Token service providers.
These new proposals act to protect consumers within the cryptocurrency space, and provide new requirements for companies that offer stablecoins in Singapore.
Broadly, the proposals by MAS aim to ensure that businesses act properly when dealing with their customers and their assets, including providing relevant risk disclosures, and disallowing the use of credit facilities for consumers.
Ensuring consumers have all the information
While recognising that the digital asset ecosystem has potential to help Singapore grow, MAS has once again expressed disapproval for cryptocurrency speculation, and criticised the consistent lack of attention drawn to the risks of cryptocurrency speculation and trading.
According to MAS, there are also risks of scams and frauds that the new regulations would like to deal with, and noted that “inadequate business practices and opacity of business operations further exacerbate risks faced by consumers”.
That being said, the regulatory body has also pointed out that it is not feasible to ban cryptocurrencies, and as such, cautioned that “consumers must take primary responsibility to understand the choices they wish to make, obtain the needed information, and exercise utmost caution before deciding where to put their money”.
As such, MAS is proposing that crypto companies should assess if retail customers have sufficient knowledge of cryptocurrency trading before they provide, and what these service providers should do if their customers do not.
Risks that retail consumers would have to know about would include sharp fluctuations in crypto prices, as well as the inability to sell their tokens during system outages or illiquid market conditions.
DPT service providers may have to provide educational materials, and encourage customers to review materials that they have before they engage in crypto trading.
MAS is also considering banning the use of both monetary and non-monetary incentives as a tactic to drive customer adoption by DPT service providers, as well as bans on service providers providing credit to customers to either buy or continue to hold their crypto.
Leveraged trading would also be banned, and credit cards cannot be used to top up crypto wallets or buy crypto.
Businesses need to make their processes public
MAS has also suggested that at present, there is significant space for improvement in terms of regulating how businesses in the crypto ecosystem behave.
Primarily, MAS is considering new requirements for businesses to keep service provider assets separate for customers, with customers’ assets held specifically for the benefit of the customers in case the service provider becomes insolvent.
In addition, companies may be prohibited from lending out tokens that customers deposit, or form mortgaging or otherwise using these tokens.
For non-retail customers, these actions would not be banned, but MAS is also proposing that service providers should make it clear to customers that such activity is being carried out and obtain their explicit consent.
MAS has also taken notice of the fact that many crypto exchanges often offer a wide range of tokens, including new tokens. At the same time, however, these new tokens often collapse in value soon after being listed.
As such, MAS’ proposal would require trading platforms to make public the criteria and due diligence that these companies do before listing these tokens, as well as the conditions that would cause the platform to remove these tokens, and any resulting settlement procedures.
Stablecoins will require reserve assets to back them
New regulations are also being proposed to deal with the advent of stablecoins within the crypto ecosystem. At present, however, MAS only sees fit to regulate stablecoins when the value of the tokens in circulation exceeds S$5 million.
New regulations will relate to value stability, reference currency, disclosures, and prudential standards. Immediate priority will be given to raising the standard of single-currency pegged stablecoins (SCS) issued in Singapore.
Issuers of these stablecoins will need to hold reserves to back the amount of tokens that they issue, and these reserve assets must be equivalent to at least 100 per cent of the par value of outstanding stablecoins in circulation.
Reserves must also be denominated in the same currency as the pegged currency, and be independently audited on a monthly basis. These reserves can only be held in cash, cash equivalents, or debt securities.
Additional requirements for these securities include that they must have no more than three months residual maturity, and are issued by either a central bank of the pegged currency or organisations that are of both governmental and international character with a credit rating of at least AA-.
Furthermore, MAS is only looking to allow the issuance of SCS that are pegged to the Singapore Dollar, or one of the Group of Ten currencies. These include the Australian Dollar, Canadian Dollar, Euro, Japanese Yen, Pound Sterling, and US Dollar, among others.
Stablecoin issuers will also need to segregate customers’ deposits from their own, and reserve assets must be held with banks or other companies providing custodial services in Singapore.
To guarantee that stablecoin issuers will not expose themselves to additional risks, issuers will also be forbidden from other activities, including investing in and extending loans to other companies, lending or staking of DPTs, or trading in DPTs.
Aside from these requirements, stablecoin issuers will have to publish a whitepaper disclosing details of the stablecoin, including redemption rights for stablecoin holders, on their corporate website.
Banks will also be allowed to issue stablecoins, with the same requirements as other issuers. According to MAS, no additional requirements are needed “given the existing rigorous capital and liquidity frameworks applied to banks”.
Commenting on the new regulations that MAS has proposed, Ho Hern Shin, Deputy Managing Director (Financial Supervision) at MAS, argued that the 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,” she added.
Thus far, MAS has repeatedly made known that while it considers blockchain technology useful and worth studying, it also frowns upon cryptocurrency speculation.
Some of MAS’ previous guidelines include the prohibiting of advertisements targeting retail investors by crypto products.
Crypto companies that wish to operate in Singapore must apply for a DPT licence with MAS, and pass a series of checks before they are approved. To date, MAS has only given the green light to a handful of companies to operate in Singapore, and some companies like Binance have already decided to leave.
At present, MAS is accepting comments and feedback on these proposed changes, which are to be submitted by 21 December 2022.