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The Central Bank of Singapore is introducing new measures to improve investor protection and market integrity in the cryptocurrency industry.
On July 3, the Monetary Authority of Singapore (MAS) announced new requirements for cryptocurrency service providers to hold customer assets in statutory trust by the end of the year.
“This will reduce the risk of loss or misuse of customer assets, as well as facilitate the recovery of customer assets in the event of the insolvency of the DPT service provider,” the regulator said.
The new custody measures follow a public consultation on regulatory measures to mitigate risks for consumers from trading cryptocurrencies, which was launched in October 2022. According to the MAS, the consultations generated “significant interest” from a wide range of respondents.
In an official response to the public consultation, the Central Bank of Singapore noted that 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 those of its other users.
“However, several respondents disagreed, suggesting that DPTSPs should be required to segregate each client’s assets from other clients’ assets at separate blockchain addresses,” writes MAS. Respondents felt that custodial segregation could provide clients with greater transparency, allowing them to identify and verify their own assets.
In addition to the custody requirements, the MAS also requires crypto companies to conduct daily reconciliation of clients’ assets and maintain proper ledgers and records. DPTSPs must also provide access and operational control to customer DPTs in Singapore and ensure that the storage function is independent from other business units.
In addition, the regulator is also working on a proposal to restrict cryptocurrency service providers from facilitating lending or placing DPTs to their retail clients. However, for institutional and accredited investors, DPT providers may continue to facilitate such activities.
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MAS added that some respondents suggested allowing crypto firms to offer lending and staking, subject to retail customer consent and risk disclosure. “Others advocated a ban on this high-risk and speculative activity,” the regulator noted, adding:
“MAS will monitor market developments and consumer risk awareness as they develop and will take action to ensure our measures remain balanced and adequate.”
The latest investor protection regulatory changes in Singapore are aimed at addressing industry crises such as FTX that have resulted in millions of dollars lost to customers. In addition, the 2022 cryptocurrency lending crisis significantly impacted firms in Singapore, with major local firms such as Three Arrows Capital and Hodlnaut going bankrupt amid the bear market.