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Introduction

As the cryptocurrency market continues to evolve and gain popularity worldwide, regulatory authorities are taking proactive measures to protect consumers and enhance market integrity. In Singapore, the Monetary Authority of Singapore (MAS) has proposed new regulatory standards to reduce the risks associated with cryptocurrency trading and ensure the stability of stablecoins in the digital asset ecosystem. The measures will be part of the Payment Services Act and aim to strike a balance between fostering innovation and safeguarding consumer interests.

Section 1: Understanding MAS’s Proposed Regulatory Measures

1.1 Background on Cryptocurrency Regulation in Singapore Singapore has been cautious about virtual currency transactions since 2013, highlighting significant risks associated with them. Over the years, the MAS has clarified its stance on initial coin offerings (ICOs) and emphasized the need for due diligence when investing in digital tokens. While the MAS previously regulated virtual currency intermediaries to address money laundering and terrorist financing risks, it did not directly regulate cryptocurrencies themselves.

1.2 Tightening of Cryptocurrency Regulations In response to the growing interest in cryptocurrency investments and high-profile collapses of crypto-related entities, the MAS announced plans to tighten cryptocurrency regulations in 2022. The goal is to reduce consumer harm and protect investors from speculative trading.

Section 2: MAS’s Proposed Measures for Digital Payment Token Service Providers

2.1 Consumer Access Measures The proposed measures aim to enhance consumer protection and education in cryptocurrency trading. Key proposals include:

• Assessment of Retail Customers’ Risk Knowledge: DPT service providers will assess retail customers’ knowledge of cryptocurrency trading risks using an industry-agreed template. Customers lacking sufficient risk knowledge will receive educational materials and cooling-off periods.
• No Incentives for Retail Customers: DPT service providers will be prohibited from offering incentives to retail customers or rewarding referrals of cryptocurrency services to retail customers.
• Restriction on Credit Facilities and Leverage: DPT service providers must not offer credit facilities or leverage to retail consumers for cryptocurrency trading and cannot accept payment for crypto services via credit or charge cards.

2.2 Business Conduct Measures To ensure standardized business practices across the industry, the MAS intends to establish baseline conduct norms for DPT service providers. The proposed measures include:

• Proper Segregation of Customers’ Assets: DPT service providers must implement proper segregation of customers’ assets, and the MAS is exploring the feasibility of using independent custodians to hold customers’ assets.
• Written Disclosures of Arrangements and Risks: DPT service providers will provide written disclosures of the arrangements and risks involved in holding customers’ assets, including any commingling risks.
• Daily Reconciliation of Customers’ Assets: DPT service providers must conduct daily reconciliation of all customers’ assets held by them.
• Monthly Statements: DPT service providers are required to provide customers with a monthly statement of account as a minimum requirement.
• Safeguarding of Private Keys: DPT service providers must implement controls to safeguard the private keys and storage of customers’ cryptocurrencies.
• Restriction on Mortgaging or Charging of Cryptocurrencies: DPT service providers are prohibited from using retail customers’ cryptocurrencies as collateral.

2.3 Technology Risks Similar to other financial institutions, DPT service providers will be required to maintain high availability and recoverability of their critical systems to mitigate technology risks.

Section 3: MAS’s Proposed Regulatory Approach for Stablecoins

3.1 Importance of Stablecoins in the Digital Asset Ecosystem MAS acknowledges the potential of stablecoins as a medium of exchange in the digital asset ecosystem, provided they are well-regulated and securely backed. Stablecoins offer stability and can facilitate transactions within the crypto market.

3.2 Proposed Regulations for Single-Currency Pegged Stablecoins (SCS) To regulate stablecoins pegged to a single currency, MAS proposes the following issuer requirements:

• Value Stability: SCS issuers must hold reserve assets equivalent to 100% of the par value of the outstanding SCS in circulation. These assets must be denominated in the same currency as the pegged currency. The issuers must also implement audit and segregation of reserves and ensure timely redemption at par value.
• Reference Currency: All SCS issued in Singapore can be pegged only to the Singapore dollar or any Group of Ten (G10) currencies.
• Disclosures: Stablecoin issuers will be required to publish a white paper disclosing details of the SCS, including the redemption rights of stablecoin holders.
• Prudential Standards: SCS issuers must meet a base capital requirement of the higher of S$1 million or 50% of annual operating expenses. They must also hold liquid assets valued at the higher of 50% of annual operating expenses or an amount assessed for recovery or an orderly wind-down.

3.3 Inclusion of Banks in Stablecoin Issuance Banks in Singapore will be allowed to issue stablecoins as well, with no additional reserve backing and prudential requirements, given the existing rigorous capital and liquidity frameworks applied to banks.

Section 4: Implications for Singapore Citizens

4.1 Enhanced Consumer Protection MAS’s proposed measures aim to protect retail customers by improving risk awareness and ensuring responsible business conduct among DPT service providers. The focus on education and disclosure empowers consumers to make informed decisions.

4.2 Stablecoin Adoption and Stability With well-regulated stablecoins, Singapore’s digital asset ecosystem may see increased adoption and usage of stablecoins as a reliable medium of exchange. The proposed regulations will promote trust and confidence in stablecoins.

Conclusion

MAS’s proposed regulatory standards for cryptocurrencies and stablecoins reflect its commitment to creating a balanced and secure digital asset ecosystem in Singapore. By fostering innovation while safeguarding consumer interests, the MAS seeks to position Singapore as a leading hub for cryptocurrency activities. As the industry evolves, these proposed measures will play a pivotal role in shaping the future of cryptocurrency trading and stablecoin development in the country. Interested parties are encouraged to provide feedback on the proposals to contribute to a robust regulatory framework that supports sustainable growth in the crypto market.