Introduction

In Singapore, cryptocurrencies are generally regulated as digital payment tokens ("DPT") under the Payment Services Act 2019 ("PS Act"). Currently, DPT service providers are regulated under the PS Act primarily for anti-money laundering and countering the financing of terrorism ("AML/CFT") risks, and technology and cyber risks. Although DPT service providers are not regulated for consumer protection risks under the PS Act, the Monetary Authority of Singapore ("MAS") has consistently issued strong warnings to retail investors that speculative trading of DPTs (including cryptocurrencies) is not suitable for them. DPT service providers are required to provide a risk warning to their customers about trading in DPTs, and are subject to restrictions concerning the promotion of DPT services at public places.

Despite all these measures, cryptocurrency speculation activities among retail investors were on an upward trend until the recent crypto markets shake-up, which saw the collapse of TerraUSD (a stablecoin) and the value of popular cryptocurrencies like Bitcoin and Ether plunging steeply

To reduce the risk of consumer harm in cryptocurrency trading, MAS issued the "Consultation Paper on Proposed Regulatory Measures for Digital Payment Token Services" to seek comments on its proposals to introduce consumer access measures for retail customers of DPT service providers, business conduct measures and enhanced measures to manage technology and cyber risks for DPT service providers.

Despite the negative news associated with some stablecoins lately, MAS is of the view that, unlike cryptocurrencies, stablecoins can be a credible digital medium of exchange to facilitate transactions in a digital asset ecosystem. MAS intends to develop an innovative and responsible digital asset ecosystem in Singapore by leveraging on the innovative combination of tokenisation and distributed ledgers. Against this backdrop, MAS issued the "Consultation Paper on Proposed Regulatory Approach for Stablecoin-Related Activities" to seek comments on its regulatory approach on stablecoin-related issuance and intermediation activities.

Comments on these two MAS consultation papers must be submitted to MAS by 21 December 2022.

This Update highlights the key proposals discussed in the two MAS consultation papers

Consultation Paper on Proposed Regulatory Measures for Digital Payment Token Services

This consultation paper discusses the proposed regulatory measures for licensees and exempt payment service providers that carry on a business of providing DPT services under the PS Act (collectively, DPT service providers or "DPTSPs") in the following areas:

  1. Consumer Access Measures;
  2. Business Conduct Measures;
  3. Enhanced Measures to Manage Technology and Cyber Risks;
  4. Potential Measures to Address Integrity Risks; and
  5. Implementation Details and Transitional Period.

  1. Consumer Access Measures

  • Apply to retail customers in Singapore: DPTSPs will be required to apply these new consumer access measures to a "retail customer" in Singapore, namely, a customer who is not an accredited investor ("AI") or institutional investor, and an individual who is resident in Singapore or a partnership or corporation which is formed or incorporated in Singapore.
  • Eligibility criteria for AI: The new consumer access measures will not apply to AIs. MAS proposes to adopt the current AI definition and threshold for determining whether a customer is an AI that are set out in the Securities and Futures Act 2001 ("SFA"). One of the criteria of an AI is an individual who has over S$2 million in net personal assets. The consultation paper seeks comments on whether the value of DPT holdings that are highly volatile should be taken into account in calculating the individual's net personal assets. Separately, MAS also indicated that the same considerations should similarly apply to the determination of AI under the SFA. MAS will also be reviewing the AI definition in the SFA and will engage stakeholders, including the capital markets industry, separately.
  • Risk awareness assessment: A DPTSP should assess that a retail customer has sufficient knowledge of the following risks of DPTs and DPT services before providing any DPT service to that customer:
    • Sharp fluctuations in DPTs' prices and the risks of losing all monies put into DPTs;
    • Inability to readily sell his/her DPTs;
    • Losing access to his/her DPTs in the event of a technological or operational issue; and
    • Losing his/her DPTs in the event of fraud, theft, sabotage or cyber-attack.
  • Prohibition against offering of incentives: DPTSPs should not offer any incentives (monetary or non-monetary) to: (1) any retail customers for participating in a DPT service; or (2) any person (e.g., an existing customer or a celebrity) for referring a DPT service to retail customers.
  • Restrictions on debt-financed and leveraged DPT transactions: DPTSPs should not:
    • provide to a retail customer any credit facility (whether in the form of fiat currencies or DPTs) to help the retail customer purchase, or continue holding, the DPTs;
    • enter into any leveraged DPT transaction with a retail customer, or facilitate a retail customer's entering into any leveraged DPT transaction with any other person; or
    • accept any payments made by the retail customer using a credit card or charge card, in connection with the provision of any DPT service.

  1. Business Conduct Measures

  • Segregation of customers' assets: DPTSPs should ensure that their customers' assets (including cash and the customers' DPTs) are segregated from their own assets. The customers' assets should be held for the benefit of the customers, for example, in a trust account or arrangement.
  • Safeguarding customers' assets held by DPTSPs: MAS is seeking comments on proposed measures to minimise the risk of loss or misuse of customers' assets held by DPTSPs which include:
    • Requiring DPTSPs to provide written disclosures to their customers about the arrangements for and risks involved in having their assets held by DPTSPs;
    • Requiring DPTSPs to appoint an independent custodian to hold customers' assets;
    • Requiring DPTSPs to provide their customers with a monthly statement of account comprising information on the customers' assets and transactions; and/or
    • - Prohibiting DPTSPs from mortgaging, charging, pledging or hypothecating the retail customers' DPTs. For non-retail customers, DPT service providers should provide a clear risk disclosure document and obtain the customer's explicit consent.
  • Safeguarding private keys and storage of customers' DPTs: MAS is seeking comments on the appropriate and effective measures to safeguard the private keys and storage of customers' DPTs. DPTSPs should apply the principles of "never alone", "segregation of duties" and "least privilege" (namely, where access rights and system privileges are granted based on job responsibility and the necessity to have them to fulfil one's duties) when establishing policies, procedures and controls to ensure the safety and control of customers' DPTs.
  • Identification of conflicts of interest and disclosures: To address conflicts of interests which may arise from the situation where DPTSPs conduct multiple activities, including operating a trading platform, providing broker-dealer services and trading for their own or related accounts, it is proposed that DPTSPs should:
    • Establish and implement effective policies and procedures to identify and address conflicts of interests; and
    • Disclose to their customers the general nature and sources of conflicts of interest and the steps taken to mitigate them.

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