Singapore Seeks to Reduce Risks for Retail Crypto Investors With Restrictive Rules

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

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 city-state’s central bank believes the latter are credible as a medium of exchange.

The proposed measures have been detailed in two consultation papers published by the authority, with which it seeks feedback from industry participants. The plan is to introduce the new rules 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 reasoned. At the same time, it acknowledged that such digital coins play a supporting role in the digital asset ecosystem and banning them would not be feasible.

In an announcement on Wednesday, the monetary authority explained that the proposals cover three main areas — consumer access, business conduct, and technology risks. It intends to limit the risk of speculative trading by introducing certain obligations for crypto service providers.

These companies will have to ensure that their customers make informed decisions by providing risk disclosures, including about price fluctuations and cyberthreats. The central bank suggests they should not allow or offer retail investors the option to pay with credit.

Cryptocurrency platforms will also be required to keep customers’ assets separate from their own funds and may be prevented from lending investors’ assets to third parties. However, regardless of these measures, users will still be ultimately responsible for their decisions and actions.

Licensed crypto service providers and those operating under 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.

Praising the potential of “well-regulated and securely backed” stablecoins to facilitate transactions in the digital assets space, the MAS indicated that it plans to expand the regulatory framework for them in order to ensure their stability. It will focus on the issuance of stablecoins pegged to a single currency and with circulation exceeding 5 million Singapore dollars (approx. $3.5 million).

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

The latest regulatory move in Singapore, a major financial center that also took steps to establish itself as a crypto hub, comes amid intensifying global efforts 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. Interested parties have been invited to submit comments on the proposals by Dec. 21.

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