Singapore’s central bank, the Monetary Authority of Singapore (MAS), has recently announced new measures aimed at enhancing investor protection and market integrity in the cryptocurrency industry. These measures include the requirement for crypto service providers to hold customer assets into a statutory trust by the end of this year. The MAS believes that this move will help reduce the risk of loss or misuse of customers’ assets and facilitate their recovery in the event of a service provider’s insolvency.
The decision to implement these new custody measures follows a public consultation conducted by the MAS on regulatory measures to minimize risks to consumers from crypto trading. Launched in October 2022, the consultation received significant interest from a wide range of respondents. In response to the public consultation, the MAS noted that the majority of respondents agreed that digital payment token service providers (DPTSPs) should be allowed to deposit user assets in the same trust account as the assets of other users.
However, a few respondents disagreed with this approach, suggesting that DPTSPs should be required to segregate each customer’s assets from other customers’ assets in separate blockchain addresses. Their argument was that individual custody segregation would provide customers with greater transparency by enabling them to identify and verify their own holdings.
Aside from custody requirements, the MAS also mandated that crypto companies conduct daily reconciliation of customer assets and maintain proper books and records. DPTSPs are also required to ensure that the custody function is operationally independent from other business units and maintain access and operational controls to customers’ DPTs in Singapore.
Furthermore, the MAS is currently working on a proposal to restrict crypto service providers from facilitating lending or staking of their retail customers’ DPTs. However, DPT providers may continue to facilitate such activities for institutional and accredited investors.
In response to the MAS’ new measures, some respondents suggested allowing crypto firms to offer lending and staking services with the condition of retail customer’s consent and risk disclosures. Others, on the other hand, advocated for a complete ban on these high-risk and speculative activities. The MAS will closely monitor market developments and consumer risk awareness to ensure that the implemented measures remain balanced and appropriate.
These investor protection-related regulatory developments in Singapore are a response to past industry implosions, such as the FTX incident that resulted in customers losing millions of dollars. Additionally, major local firms like Three Arrows Capital and Hodlnaut went bankrupt during the crypto lending crisis of 2022, which significantly impacted the industry in Singapore.
In conclusion, Singapore’s central bank is taking significant steps to enhance investor protection and market integrity in the cryptocurrency industry. By requiring crypto service providers to hold customer assets in a statutory trust and implementing stricter custody and operational controls, the MAS aims to mitigate risks and safeguard consumer interests in the rapidly evolving crypto space.