Singapore needs harsher response to crypto fallout to preserve reputation as responsible hub

AS international authorities launch probes into recent cryptocurrency-related collapses, Singapore’s regulators have also started moving. Industry players, however, are questioning if it is moving fast enough, and with sufficient force.

Last week, the Monetary Authority of Singapore (MAS) reprimanded crypto hedge fund Three Arrows Capital for providing false information and exceeding its assets under management threshold. MAS also revealed it has been investigating Three Arrows since 2021.

But a reprimand seems mild given what other authorities have done.

Prosecutors in South Korea, for instance, have imposed a no-fly ban on current and former employees of Terraform Labs and Luna Foundation Guard, following an “emergency investigation” in May into 2 complaints lodged on behalf of 81 investors.

In the United States, the Securities and Exchange Commission is said to be investigating if the marketing of the stablecoin before it crashed last month violated federal investor-protection regulations,

Terraform Labs and Luna Foundation Guard, linked to the blow-up of stablecoin terraUSD last month, are registered in Singapore.

In response to The Business Times’ queries on whether MAS is working with other jurisdictions or investigating the implosion, MAS deputy managing director for financial supervision Ho Hern Shin said: “(The 2 companies) are not licensed or regulated by MAS, nor have they applied for any licence or sought exemption from holding any licence.”

MAS is “considering an appropriate regulatory approach” to emerging decentralised protocols, she said, noting that the stablecoin’s collapse highlights the challenges of regulating decentralised governance models in which an autonomous programme, rather than a legal entity, conducts regulated activities such as token issuance and redemption.

To be fair, the authority has made its stance clear by reiterating that investing in cryptocurrencies is risky and not suitable for retail investors.

In allowing the market to self regulate, it is holding true to this stance: Retail investors who choose to dabble in cryptocurrencies do so at their own risk.

Regulators here have also been stringent in granting licences for entities to operate crypto businesses here. MAS chief Ravi Menon said last year that approving only half of the licence applicants, but only those “with very high standards”, would be a better outcome than green-lighting all of them.

This approach, however, has not prevented crypto companies from setting up shop here and subsequently disappointing their stakeholders.

BT has heard from many players in the ecosystem who are anxious for regulators to take a more active hand.

In some cases, there is little regulators here can do. TerraForm Labs is one such example. While registered here, it is not regulated under the primary legislation that oversees digital payment token service providers.

Singapore’s Parliament in April passed new measures that will require domestically registered entities offering digital token services outside of Singapore to be licensed, but these laws have yet to take effect.

But perhaps more action could be taken against regulated entities, and in a more timely manner.

Three Arrows, for instance, is licensed here as a registered fund management company. It was served a liquidation order by a court in the British Virgin Islands on (Jun 27) after it failed to make payments on its loans, and has filed for bankruptcy. The 10-year-old hedge fund was founded by Singaporean crypto billionaire Zhu Su and Kyle Davies.

Or take liquidity aggregator FINXFLO, which appears to also be dealing with insolvency woes. Chairman James Gillingham was let go by the company in March. Employees have not been paid since then, according to messages from managers of the FINXFLO community on Telegram.

Gillingham told BT he is suing the company for wrongful termination. He said the company is undergoing restructuring due to a hostile takeover, and employees were paid in full when he left in March.

FINXFLO is among a list of companies exempted from holding a licence while its application is under review by the MAS.

Investors would be assuaged by greater government intervention. Improved confidence in crypto investing may or may not be what MAS hopes for.

Yet, MAS chief fintech officer Sopnendu Mohanty said in a recent interview with The Financial Times that Singapore will not tolerate any bad behaviour.

“If somebody has done a bad thing, we are brutal and unrelentingly hard,” he said.

More must be done if the Republic is to live up to this resolve.

It might still be early in the day for crypto disasters. But if Singapore comes up all too often in future disasters, its reputation as a responsible crypto hub could be at stake.