SINGAPORE – Retail customers dealing with Singapore-regulated providers of digital payment token (DPT) services will not be allowed to buy cryptocurrencies with local credit cards.
They will also have to undergo risk awareness assessments of trading in DPTs, prices of which are volatile.
These measures are among the list of conditions set out by the Monetary Authority of Singapore (MAS) on Nov 23 as it finalises its proposed rules for DPT service providers here.
The final measures, to take effect in phases from mid-2024 following legislative amendments, also state that crypto service providers are not to offer incentives such as free tokens to court retail users.
Crypto service providers are also not allowed to offer financing, margin or leverage transactions.
There is also a limit to the value of cryptocurrencies in determining a customer’s net worth.
Under the rules, providers of crypto services will treat all customers as retail customers by default, save for institutional investors.Retail customers refer to those who are not accredited or institutional investors.
Those who qualify as accredited investors have to opt in to be treated as one.
Currently, an accredited investor is someone with at least $2 million in net personal assets.
Under the finalised rules in determining if an individual is eligible as an accredited investor, the regulator will recognise no more than 50 per cent of the value of DPT holdings a person has, or up to $200,000, whichever is lower.
However, MAS said crypto players and financial institutions may adopt their own valuation models as long as they “achieve the same or more prudent outcome”.
Besides consumer safeguards, players must also adhere to business conduct rules.
They have to identify, mitigate and clearly disclose potential and actual conflicts of interest; publish policies, procedures and criteria that govern the listing of a DPT; as well as establish effective policies and procedures to handle customer complaints and resolve disputes.
MAS said crypto service providers should resolve disputes with retail customers through modes such as mediation, arbitration and litigation in the Singapore courts.
It noted that the providers may voluntarily engage the services of the Financial Industry Disputes Resolution Centre as an alternative dispute resolution channel on an ad-hoc basis for an agreed case fee.
More On This Topic Privately issued crypto has failed as medium of exchange, store of value, says MAS chief Digital assets, payments firms toy with stablecoin plans after release of new Singapore framework In terms of technology and cyber risk, MAS says it will require DPT service providers to maintain high availability and recoverability of their critical systems, in line with current requirements imposed on financial institutions.
There will be an adequate transitional period for DPT service providers to properly implement these measures, says MAS.
Mr Robson Lee, a partner at law firm Kennedys Law, cautioned that retail consumers must not place blind faith or reckless trust in crypto operators who are licensed by MAS as all investments carry risks.
He said retail consumers must be mindful not to unwittingly be complicit in any money-laundering or other illicit schemes, as the legal consequences for abetting any such illegal activities are severe.
“The risks of being inadvertently involved in money laundering and/or funding of terrorists’ activities are real when consumers are drawn to participating in ‘get-rich’ schemes, promised by crypto operators who are situated in a borderless world not within the legal jurisdiction of any established financial market that has proper regulatory guardrails and rigorous enforcement regimes,” added Mr Lee.
Mr David Gerald, founder and chief executive of the Securities Investors Association (Singapore), said that while MAS rules have safeguards for consumers, the risks are too much for small investors.“No amount of regulations can protect the retail investors fully; everyone must know they are taking a huge risk when investing in cryptocurrencies.”
The finalised measures come a year after MAS first proposed that providers of DPT services must test a customer’s understanding of the possible risks of trading before allowing them to invest, among other things.
In July, MAS published the first tranche of consultation responses and proposed legislative amendments to do with customer asset segregation and custody requirements.
These are meant to ring-fence Singapore customers’ assets in a move that is meant to avoid a repeat of the huge investor losses chalked up in 2022 when cryptocurrency firms went bust.
In August, the regulator laid out its rules for stablecoin issuers in Singapore, including having a minimum amount of reserves and allowing investors timely redemption at par value.
Ms Ho Hern Shin, deputy managing director for financial supervision at MAS, said that while the business conduct and consumer access measures can help safeguard retail investors’ interests, “they cannot insulate customers from losses associated with the inherently speculative and highly risky nature of cryptocurrency trading”.
She urged consumers to remain vigilant and exercise caution when dealing with DPT services.
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