THE Monetary Authority of Singapore is considering restricting retail investors’ use of leverage and credit facilities to trade cryptocurrencies as it joins global regulators in forging rules to govern digital assets.
Any new MAS’ rules may also include tests to determine customer suitability, Managing Director Ravi Menon said in a speech on Monday, noting that many people seem to be “irrationally oblivious” about the trading risks. It plans to publicly consult on the proposals by October, he said.
“Banning retail access to cryptocurrencies is not likely to work. The cryptocurrency world is borderless,” Menon said in front of a room of more than 50 industry players, with the seminar titled “Yes to Digital Asset Innovation, No to Cryptocurrency Speculation” also streamed online. “There is greater impetus now among global regulators to enhance regulations in this space. MAS will also do so.”
By October, the regulator will also consult industry participants about regulation of stablecoins, an issue that came to the forefront after TerraUSD collapsed in a $40 billion wipeout, sending shockwaves through digital assets markets. Menon said regulators globally are looking to impose requirements such as secure reserve backing and timely redemption at par for stablecoins.
The pitfalls of lacking global regulatory coordination have come sharply into focus over the past few months, as a series of high-profile company failures exacerbated a $2 trillion market meltdown. Singapore’s regime for crypto companies has garnered particular attention, given that several entities including disgraced hedge fund Three Arrows Capital and platforms Vauld, Zipmex and Hodlnaut, operated out of the country.
Menon reiterated a stance that cryptocurrencies’ volatility makes them unsuitable for use as money and “highly hazardous” for retail investors. Tokenization and distributed ledgers, which record the ownership and transfer of digital assets, offer economic potential however, he said.
Singapore was early to study blockchain technology as well as tout its ambitions as a crypto hub. It is now trying to achieve a delicate balance between encouraging blockchain innovation and protecting investors from some of the risks of participating in a nascent market.
Menon stressed the city-state can thread that needle, while acknowledging that the regulator could have done a better job explaining its approach, following complaints from some in the crypto industry about a lack of clarity.
There are already rules in Singapore around product suitability, fair dealing, disclosures and consumer knowledge assessment that may be adapted for crypto, according to Nizam Ismail, whose Ethikom Consultancy advises firms on compliance in areas including blockchain and financial technology.
“The focus should be on shining a brighter light for consumers to see whether they are making appropriate investment decisions,” he said.
Singapore started tightening crypto rules early this year with a ban on advertising, and plans to require virtual-asset providers to be licensed locally even if they only do business overseas. The regulator further stepped up scrutiny of the sector in recent weeks, sending a questionnaire to some applicants and holders of its digital-payments license seeking highly granular information about their business activity and holdings.
So far in the city-state, just over 10 entities have received permits to operate as digital service token providers out of nearly 200 applicants.
Given the large number of applicants for crypto licences, the MAS prioritizes those who demonstrate “strong risk management capabilities,” Menon said, adding the due diligence process takes a long time “but it is necessary.”
“With the rapid growth in scale and complexity of digital asset activities, other risks have surfaced,” he said. “Regulators around the world including MAS are therefore stepping up their responses to these new risks.” –BLOOMBERG