MAS launches crypto consumer protection playbook, seeks public feedback on proposals

THE Monetary Authority of Singapore (MAS) has released a consultation paper to get conversations started on reducing risks for retail customers dabbling in cryptocurrency. Among the suite of measures it has proposed to this end are the restricting of cryptocurrency trading via credit, implementing customer-knowledge assessments, and prohibiting crypto service providers from lending out customers’ digital-payment tokens.

In the 35-page consultation paper released on Wednesday (Oct 26), the regulator is seeking feedback from the public on measures to limit consumer access and improve business conduct in a growing space that it considers inherently risky. However, it noted that the proposals “do not and cannot protect consumers from the many inherent risks of trading in cryptocurrencies”.

Concerned about the volatile nature of crypto prices, MAS holds the view that providers of digital payment token services should not provide customers with a credit facility – whether in the form of fiat or digital payment tokens – to enable these customers to buy crypto. They should also not accept payments from retail customers using credit cards or charge cards. Similar measures are being considered in Hong Kong, the UK and Dubai.

These and other measures in the paper apply to retail customers who are not accredited investors. An accredited investor, as defined by Singapore’s Securities and Futures Act, has over S$2 million in net personal assets (among which the net value of the individual’s primary residence is capped at S$1 million), or has over S$1 million in net financial assets, or has over S$300,000 in income over the preceding 12 months.

MAS wrote in the consultation paper: “Retail customers are generally regarded as less able to access professional advice and have fewer resources to protect their interests, as compared to institutional investors or more well-resourced customers.”

In determining which crypto traders qualify as accredited investors, the regulator is considering excluding the value of crypto holdings from the value of net personal assets, or imposing a cap, for example of S$200,000, on the value of crypto holdings that can be counted towards the threshold.

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Just as customer-knowledge assessments are used to gauge the investment knowledge and experience of a retail investor who is buying an investment product, the MAS has proposed that service providers assess retail customers’ knowledge of risks such as sharp price fluctuations, fraud, theft and cyberattacks. Risks also include the inability to readily sell off their tokens in illiquid market conditions or during system outages.

The MAS is also seeking the public’s views on the steps service providers should take when a customer is assessed to have inadequate knowledge.

The authority is also proposing that service providers be barred from dangling incentives, such as free trading credits or digital payment tokens, to entice customers.

To improve business conduct, the MAS is proposing that service providers properly segregate customers’ assets from the company’s assets; it is seeking feedback on whether they should appoint an independent custodian to hold customers’ assets.

Service providers should also conduct daily reconciliation of assets held on behalf of their customers, and provide them with statements of accounts on a monthly basis at the minimum.

Noting the recent collapse of several crypto trading platforms that conducted staking or lending activities, the MAS is also recommending measures to protect customers’ digital-payment tokens from risks of unregulated borrowing and lending by providers. These include forbidding service providers from mortgaging, charging or pledging retail customers’ tokens.

For non-retail customers, the paper suggests that service providers obtain the customers’ explicit consent.

The MAS is also proposing that service providers identify and mitigate conflicts of interest, and that they publish procedures for listing tokens and the governance policies around them, and have adequate policies for handling complaints.

Finally, the MAS is also consulting on appropriate measures to promote the fair and transparent trading of cryptos, as well as to detect and deter unfair practices.

The regulator intends to draw up a set of guidelines after this consultation, and later legislate them. It is looking at a period of six to nine months for service providers to meet these guidelines. Those interested have until Dec 21 to submit their feedback.

Industry players have been anticipating more regulations since MAS managing director Ravi Menon first hinted at further measures to reduce consumer harm in a speech in August.

Chia Hock Lai, co-chairman of the Blockchain Association Singapore, said the proposals are comprehensive, but that Singapore may risk over-regulating the sector. “Some of the measures are overlapping. For instance, implementing risk-awareness tests should reduce the need to bar incentives and credit payments,” he said.

Coinhako’s vice-president of compliance Fiona Choong said regulations should strike a balance between consumer protection and consumer empowerment. Market participants and regulators should also play a bigger role in educating consumers. “Without adequate education, there will be knowledge gaps, misinformation, and opportunities for bad actors to leverage asymmetric information,” she said.

Chen Zhuling, founder of RockX, a Singapore-based platform specialising in crypto staking solutions, is concerned that the new regulations may impede Singapore’s development as an innovation centre. “It also begets the question of how Singapore would prevent retail investors from accessing foreign exchanges or crypto services that are based overseas,” he said. RockX is not regulated by the MAS.

Still, the MAS noted in its consultation paper that not all crypto activities fall within its regulatory ambit. Staking and lending activities, for instance, do not.

Unlike banks and insurance companies, crypto service providers are also not subject to prudential regulation to ensure their financial safety and soundness. They also do not have additional safety nets like deposit insurance or policy protection, the regulator said.

The MAS on Wednesday also released a consultation paper on the regulation of single-currency pegged stablecoins issued in Singapore. Among other things, it has proposed that issuers of MAS-regulated stablecoins hold reserve assets to back their coins, and that they allow timely redemption of the coins at par value. It is also looking at whether banks issuing tokenised bank liabilities should also be subject to similar requirements.