Singapore’s central bank, the Monetary Authority of Singapore (MAS), is implementing new measures to enhance investor protection and market integrity in the cryptocurrency industry. These measures include requirements for crypto service providers to hold customer assets in a statutory trust by the end of the year. The aim is to mitigate the risk of loss or misuse of customer assets and facilitate their recovery in the event of a service provider’s insolvency.
The decision to introduce new custody measures comes after a public consultation conducted in October 2022, which received significant interest from various stakeholders. While the majority of respondents agreed that digital payment token service providers (DPTSPs) should be allowed to deposit user assets in the same trust account as the assets of other users, a few respondents argued for individual custody segregation. They believed that segregating each customer’s assets in separate blockchain addresses would provide greater transparency and allow for easier verification.
In addition to custody requirements, the MAS is also mandating daily reconciliation of customer assets and proper record-keeping by crypto companies. It is crucial for DPTSPs to maintain operational independence of the custody function from other business units and ensure access and operational controls to customers’ digital payment tokens (DPTs) in Singapore.
Furthermore, the MAS is considering imposing restrictions on crypto service providers from facilitating lending or staking for retail customers, although institutional and accredited investors may continue to engage in these activities. Some respondents to the public consultation advocated for allowing such activities with the condition of retail customers giving their consent and being fully informed of the associated risks. Others called for a complete ban, citing concerns about the high-risk and speculative nature of these activities.
The MAS is closely monitoring market developments and consumer risk awareness to ensure the ongoing appropriateness of its measures. These regulatory developments are a response to previous incidents, such as the loss of millions of dollars by customers and the impact of the crypto lending crisis in 2022 on Singaporean firms like Three Arrows Capital and Hodlnaut.
By implementing these measures, Singapore aims to safeguard investors and instill confidence in the cryptocurrency industry. The establishment of statutory trusts and stricter regulations surrounding custody and financial activities will contribute to a safer and more transparent environment for cryptocurrency trading in the country.