Singapore plans tighter cryptocurrency rules to limit risks for retail investors
- Proposed new rules from the central bank include banning incentives such as referral bonuses and introducing a test for would-be investors
- The measures are set to be discussed with industry players before being first introduced as guidelines then eventually written into law
The proposed new rules, which would include banning monetary and non-monetary incentives such as referral bonuses for consumers, were highlighted in a set of consultation papers published by the Monetary Authority of Singapore (MAS), which also acts as the city state’s financial regulator.
Among other measures, the MAS has proposed that firms should not accept credit card payments or offer credit facilities to retail investors as this could result in a “magnification of losses”.
Providers of cryptocurrency services would also have to ensure that their customers have “sufficient knowledge” of the risks involved in trading, such as sharp price fluctuations and fraud or cyberattacks potentially leading to a loss of assets. The MAS suggested that would-be investors be made to take a test before they are allowed to trade.
“Many retail customers may not have sufficient knowledge of the risks of trading [cryptocurrencies], leading them to take on higher risks than they would otherwise have been willing, or are able, to bear,” the bank said in its 35-page consultation paper.
Cryptocurrency companies, it added, have “a responsibility to guard against consumers participating in a market that they do not fully understand”.
Bitcoin, NFTs attract family offices, super-rich in Hong Kong, Singapore
According to the MAS, the measures are set to be discussed with industry players before being first introduced as guidelines then eventually written into law.
Both cryptocurrency entities that have been granted licences or in-approval licences from the regulator – including Coinbase and Crypto.com – and firms operating under an exemption while awaiting approval would have to comply with the rules, which do not apply to accredited or institutional investors.
Wednesday’s development came amid a global push by regulators to better govern the cryptocurrency space.
Authorities have stepped up their messaging in recent months, warning citizens about the speculative nature of cryptocurrencies that can result in investors being hit with huge losses.
This was in addition to a ban in January on cryptocurrency marketing or advertising in public spaces, which saw the removal of crypto ATMs and advertisements plastered around railway stations.
Ravi Menon, Singapore’s central bank chief, made it clear in August that authorities strongly discouraged cryptocurrency trading for retail investors as it was “highly hazardous”, but said they saw more value in digital assets and stablecoins, tokens whose values are typically tied to fiat currencies.
‘Singapore is not a place to speculate’: regulator steps up crypto warning
On Wednesday, the MAS again stressed in a press release that cryptocurrency trading was “highly risky and not suitable for the general public”.
The central bank added that it had considered entirely banning cryptocurrency trading for retail consumers, but it said such a move would likely be limited in its effectiveness given the cross-border nature of trading.
Cryptocurrencies, it said, also played a supporting role in the broader digital asset ecosystem, so its proposed measures were more targeted.
Apart from restricting consumer access, the MAS said in its consultation paper that it was also considering enacting rules to better govern how cryptocurrency companies conduct their business.
Regulations go hand in hand with innovation in financial services
For example, it proposed that customers’ assets be kept separate from the companies’ own to mitigate the risk of loss or misuse of assets, and said it also planned to restrict cryptocurrency platforms from lending retail investors’ assets.
It said it was considering putting in place a transition period of between six and nine months for firms to comply with the new guidelines.
Meanwhile, in a separate set of consultation papers, the central bank sought to expand its existing regulatory framework on stablecoins, noting that they have the potential to be a “medium of exchange to facilitate transactions in the digital asset ecosystem”.
Ho Hern Shin, deputy managing director of financial supervision at the MAS, said the proposed measures marked a milestone in Singapore’s strategy of fostering an “innovative and responsible” digital asset system. “Regulations go hand in hand with innovation in financial services,” she said.
Zennon Kapron, director of fintech research and consulting firm Kapronasia, said the proposed measures were not entirely surprising and would address some existing regulatory shortcomings in Singapore’s cryptocurrency industry.
The planned segregation of investors’ and firms’ assets, for example, was something that traditional asset managers have been doing and “have been a long time coming to the crypto space”, he said.
Several measures, including having consumers take a risk awareness test, could be challenging to implement, they should make the industry more stable in the long-run, Kapron said.
