The Monetary Authority of Singapore recently announced that individuals dealing with digital payment token (DPT) services from Singapore-regulated providers will be prohibited from using local credit cards to purchase cryptocurrencies.
Additionally, they will be required to undergo assessments regarding the risks associated with trading in DPTs. DPTs are known for their volatile prices.
These conditions are part of the Monetary Authority of Singapore’s (MAS) finalised regulations for DPT service providers, set out on November 23. The measures are scheduled to be implemented gradually from mid-2024 through legislative adjustments. They also include restrictions prohibiting crypto service providers from enticing retail users with incentives like free tokens.
Moreover, crypto service providers are not permitted to offer financing, margin, or leverage transactions, and there are limits on the value of cryptocurrencies considered in determining a customer’s net worth.
Under these regulations, all customers will be treated as retail customers by default, except for institutional investors. Retail customers encompass individuals who are not accredited or institutional investors.
How to become an accredited investor?
Accredited investors must explicitly opt-in to be treated as such. Currently, an accredited investor is defined as someone possessing at least $2 million in net personal assets.
To determine eligibility as an accredited investor under the finalized rules, the regulator will acknowledge a maximum of 50% of a person’s DPT holdings’ value, or up to $200,000, whichever is lower.
MAS has emphasized that crypto entities and financial institutions can adopt their valuation models as long as they achieve similarly cautious outcomes.
Alongside consumer protections, these entities must adhere to business conduct regulations. This includes identifying, mitigating, and transparently disclosing potential conflicts of interest, establishing clear policies governing DPT listings, and creating effective procedures for handling customer complaints and resolving disputes.
Regarding dispute resolution with retail customers, MAS has suggested utilising modes such as mediation, arbitration, and litigation in Singapore courts. Additionally, providers may opt to engage the Financial Industry Disputes Resolution Centre for alternative dispute resolution, subject to an agreed case fee.
The regulatory framework also mandates DPT service providers to maintain high availability and recoverability of their critical systems. This is to align with existing requirements imposed on financial institutions in terms of technology and cyber risk.
MAS has assured a transitional period for DPT service providers to implement these measures effectively.
A word of caution when trading cryptocurrencies
Legal experts caution retail consumers against blindly trusting licensed crypto operators. They highlighted the risks involved in investing and the potential for unwitting involvement in illegal activities like money laundering.
Despite the safeguards in place, some, like the founder of the Securities Investors Association (Singapore), emphasize the inherent risks of cryptocurrency investments, emphasising the need for investors to recognize and accept these risks.
These finalised measures arrived a year after MAS initially proposed requirements for DPT service providers to assess customers’ understanding of trading risks before permitting investments. Previous consultation responses and legislative proposals aimed at safeguarding customer assets and custody requirements were also published.
The regulations for stablecoin issuers, including reserve requirements and timely redemption at par value for investors, were outlined in August by the regulator.
While the established business conduct and consumer access measures aim to protect retail investors’ interests, MAS officials caution that they cannot entirely shield customers from the speculative and high-risk nature of trading in cryptocurrencies. Consumers should remain cautious and vigilant when engaging with DPT services.