MAS may bar crypto firms from lending out customer tokens with new proposal

The Monetary Authority of Singapore (MAS) has drawn up a proposal for regulatory measures for digital payment token (DPT) services in the country.

Image credit: Timmy Loen

During the ongoing consultation period, which ends on December 21, the regulatory body aims to gather comments from stakeholders regarding the tentative guidelines.

Due to the instability of DPT prices, MAS has moved to ban credit facilities, leveraged transactions, and purchases made with credit cards dealing with DPT services. Additionally, suggestions have been made to bar DPT service providers (DPTSPs) from lending out customer assets to reduce the risk of losses being incurred. The proposal was put forward to mitigate risks from staking, which MAS said is closely tied to the “unregulated and nascent” decentralized finance space.

“There is also the question of how Singaporean retail investors are prevented from accessing foreign crypto exchanges, products, or services,” Chen Zhuling, founder and CEO of blockchain fintech firm RockX, said in a note.

Measures to alter the threshold for accredited investors have also been planned, as well as a cap of S$200,000 (US$142,000) on DPT investments for these individuals.

MAS also proposed an assessment that would require crypto investors to answer a questionnaire to verify whether they are sufficiently versed in the potential risks associated with DPT purchases.

Additionally, DPTSPs may need to restrict the offering of incentives – such as credits or DPTs – to customers, so as to “not unduly influence the decision of the retail customer.”

The government body also proposed that customer assets should be separated from those of DPTSPs.

“The recent failure of several firms in the DPT industry underscores the importance of DPTSPs having effective and robust arrangements in place for the identification and segregation of customers’ assets,” the paper read.

Along with transparent listing and governance policies, MAS advised that risk disclosures should also be drawn up. These would contain information regarding asset management as well as the measures taken in case the DPTSP were to become insolvent.

MAS also noted that DPTSP platforms are vulnerable to cyberattacks and proposed to maintain high system availability and recoverability. The body suggests that DPTSPs are to be subject to the Notice of Risk Management, which is currently applicable to other financial institutions.

Stablecoin regulations

In a separate consultation paper, MAS said that it may also regulate the issuance of stablecoins pegged to a single currency (SCS), where the value of the tokens in circulation exceeds S$5 million (US$3.6 million).

It advised that SCS issuers should always have a base capital requirement of over S$1 million (US$710,000) or 50% of their annual operating expenses.