Singapore strengthens investor protection with a new crypto policy

Key learning points

• The new regulations introduced by the MAS require crypto exchanges and DPT service providers to hold clients’ assets under a legal trust.
• The regulations highlight the need for DPT service providers to segregate client assets from their own. This practice, along with the daily reconciliation of client assets and proper record keeping, helps protect client funds and promotes transparency in the management of DPT services.
• MAS will place restrictions on crypto exchanges and DPT service providers to prevent them from facilitating lending and staking activities for private clients.
• The regulatory framework aims to promote innovation in the crypto industry and effectively protect investors.

The Monetary Authority of Singapore (MAS) today announced a set of strict regulations aimed at strengthening investor protection and market integrity in the burgeoning crypto industry. These measures will have a significant impact on consumers and the overall crypto industry in Singapore.

MAS has taken a proactive approach to addressing the potential risks of crypto services by requiring crypto exchanges to protect clients’ assets under a legal trust. By doing so, MAS aims to mitigate the risk of asset loss or misuse and provide a clear path for the recovery of client assets in the event of a service provider’s insolvency. This development is critical as it builds confidence among consumers and ensures that their assets are adequately protected.

The move follows an expanded audience consultation held in October 2022, which garnered significant interest from a wide range of stakeholders.

The consultation received overwhelming support for measures that improve investor protection, including the segregation of client assets from the service provider’s own assets, daily reconciliation of client assets and the establishment of robust operational controls. These practices help protect client funds and ensure transparency in the management of DPT services.

MAS is now inviting public feedback on the proposed legislative changes to the Payment Services Regulations. By actively seeking input from industry participants and consumers, MAS strives to strike a balance between effective regulation and fostering innovation in the crypto industry.

The forthcoming publication of guidelines will provide greater clarity on the implementation of these regulations, ensuring consistent compliance across the industry.

In addition to the requirement to protect client assets, MAS will restrict crypto exchanges from facilitating lending and staking activities for retail clients. These activities are considered risky and speculative and generally considered unsuitable for retail investors. However, institutional and accredited investors will still have access to these services and recognize their ability to circumvent such risks.

During the public consultation, MAS received different views on this proposal. Some respondents advocated providing lending and restocking services to private clients with their explicit consent and adequate risk disclosures. Others recommended a complete ban on these activities because of their inherent risks.

MAS said it will closely monitor market developments and consumer risk awareness to ensure its measures remain balanced and appropriate as the industry evolves.

MAS emphasizes the importance of consumer awareness and caution when trading crypto. While the regulatory measures put in place by MAS are designed to enhance investor protection, they cannot guarantee that all losses will be prevented. crypto trading is characterized by its highly speculative and volatile nature, making it inherently risky.

MAS points out that the requirement for crypto exchanges to protect client assets under a statutory trust helps minimize the risk of asset loss. It is crucial for consumers to understand that there can still be significant delays in recovering their assets in the event of the service provider’s insolvency. Such delays may occur due to the complexity of the liquidation process and the need to prioritize creditors’ claims.

Further, MAS underlines the importance of consumers avoiding unregulated entities, especially those based abroad. Dealing with unregulated entities exposes consumers to increased risks, including the potential loss of all of their assets. By promoting consumer awareness and vigilance, MAS aims to protect their interests and prevent fraudulent activity within the crypto industry.

The introduction of these stringent regulations by MAS signifies Singapore’s commitment to fostering a safe and sustainable environment for crypto-related activities. By striking the right balance between consumer protection and market innovation, Singapore aims to position itself as a global leader in the crypto industry, attracting responsible players while ensuring investor confidence.

Also read: Singapore emerges as the most ‘business-friendly’ crypto country