Singapore Frames New Rules to Reduce Risks for Retail Crypto Investors

Singapore Frames New Rules to Reduce Risks for Retail Crypto Investors

Financial authorities in Singapore have proposed new regulations to protect investors from the risks associated with cryptocurrency investment and trading. The measures will expand the scope of regulations for stablecoins, which will be discussed with the industry before their adoption.

Singapore Prepares to Limit Public Access to Digital Assets

The Monetary Authority of Singapore (MAS) has put forward draft regulations that aim to restrict crypto trading for retail investors, with the stated goal of reducing risks for consumers associated with decentralized digital currencies while boosting the development of stablecoins.

The proposed measures have been detailed in two consultation papers published by the authority, which seek feedback from industry participants. The new rules will be introduced as guidelines before eventually incorporating them into the Payment Services Act.

"Trading in cryptocurrencies is highly risky and not suitable for the general public," the MAS has reasoned. The authorities acknowledge that digital coins play a supporting role in the digital asset ecosystem, and banning them may not be feasible.

The monetary authorities explained on Wednesday that the proposals cover three main areas, consumer access, business conduct, and technology risks. The primary objective is to largely limit the risk of speculative trading by retail investors.

Crypto companies need to ensure that their customers make informed decisions by providing risk disclosures, including those about price fluctuations and cyber threats. The central bank has suggested not to allow or offer retail investors the credit option.

Cryptocurrency platforms will also be required to keep customers’ assets separate from their funds and prevent lending investors’ assets to third parties. However, users will still be ultimately responsible for their decisions and actions.

Licensed crypto service providers and those operating under an exemption while awaiting authorization would be required to comply with the upcoming regulations. However, the new, stricter rules would not apply to accredited or institutional investors.

MAS to Regulate Stablecoins Pegged to Single Fiat Currency

Only "well-regulated and securely backed" stablecoins will facilitate transactions in the digital asset space. MAS has indicated that it plans to expand the regulatory framework for them to ensure their stability. It will focus on the issuance of stablecoins pegged to a single currency. 

The proposed rules, state that issuers will be required to hold reserve assets equivalent to at least 100% of the nominal value of the coins, which can be pegged to the Singapore dollar or any Group of Ten (G10) currency. They will publish a white paper, meet a base capital requirement, and maintain liquid assets. Domestic banks will be allowed to issue stablecoins.

The latest regulatory move in Singapore, which is a major financial center is to establish itself as a crypto hub. It is part of an effort to regulate the crypto economy following events like the collapse of the terrausd (UST) stablecoin and the bankruptcy of the Singapore-based crypto hedge fund Three Arrows Capital.

"The two sets of proposed measures mark the next milestone in enhancing Singapore’s regulatory approach to foster an innovative and responsible digital asset ecosystem," MAS Deputy Managing Director of Financial Supervision, Ho Hern Shin, said in a statement.