Singapore consults on retail crypto and stablecoin regulations
The Monetary Authority of Singapore (MAS) has proposed new measures regulating cryptocurrency exchanges and retail crypto offerings, as well as addressing the risks associated with fiat-backed stablecoins.
On 26 October, MAS – the central bank and financial regulator of Singapore – issued two consultation papers. The first paper outlines proposed new measures to protect consumers and which MAS says are intended to curb cryptocurrency speculation. These include:
- to require retail investors to undertake a risk awareness assessment before trading cryptocurrencies;
- restrictions on offering incentives to retail investors to trade cryptocurrencies;
- restricts retail investors from using credit or leverage to trade cryptocurrencies (including credit cards to purchase cryptocurrencies);
- require exchanges to separate client funds from their own assets (and, potentially, appoint an independent custodian);
- ban on lending or borrowing retail users’ crypto-assets, effectively banning consumers from so-called “earn-type” or stake products (following a series of high-profile insolvencies involving businesses that offered these products);
- require crypto exchanges to identify and mitigate conflicts of interest; and
- requires exchanges to take steps to address market abuse by implementing systems and procedures to encourage a fair, orderly and transparent market.
MAS explained its rationale for increasing consumer protection:
Trading cryptocurrencies … is highly risky and not suitable for the general public. However, cryptocurrencies play a supporting role in the wider digital asset ecosystem and banning them would not be possible. Therefore, in order to reduce the risk to consumers from speculative trading of cryptocurrencies, MAS will require…proper business conduct and adequate risk disclosure
The second paper proposes a new regime to regulate and support the development of credible and reliable stablecoins that facilitate digital transactions. Proposed rules would target stablecoins whose value in circulation exceeds SG$5 million (about US$3.54 million). The proposed measures would create a class of MAS-licensed single-currency stablecoins (or SCS). Key measures include:
- Stablecoin issuers must hold reserve funds (eg cash) at least 1:1 of value in circulation and provide timely redemption to customers;
- regulated stablecoins must be pegged to a single currency;
- Stablecoin issuers will be required to publish a white paper; and
- Stablecoins issuers must meet a basic capital requirement.
In addition, banks in Singapore will be allowed to issue stablecoins without additional reserve support and prudential requirements in light of existing banking regulations.
MAS is also seeking views on whether it should reserve the power to designate a systemic stablecoin scheme as a designated payment system.
In a statement, MAS expressed its continued support for stablecoin development:
Stablecoins have the potential to be a medium of exchange to facilitate transactions in the digital asset ecosystem, provided they are well regulated and securely backed. The current regulatory framework … will be expanded to ensure that regulated stablecoins have a high degree of value stability.
Consultations on both papers are open until 21 December 2022. MAS intends to implement the new measures as part of the Payment Services Act, which introduced Singapore’s licensing regime for cryptocurrency exchanges.
The consultation papers follow recent comments from MAS which indicated the city-state’s intention to support tokenisation and the growth of the digital asset industry, while addressing potential consumer harm.
Some critics have expressed concern that the proposed consumer protections may be overly prescriptive, and that the ban on purchasing tokens using credit or leverage may inadvertently encourage retail investors to trade crypto derivatives. The proposed ban on offering income or stake products would prohibit even regulated entities from offering these products, while encouraging retail users to seek out unregulated DeFi or foreign offerings. Meanwhile, Singapore is likely to face the same limitations faced by other jurisdictions in terms of monitoring and controlling trading by its citizens on foreign platforms.
These proposals nonetheless demonstrate Singapore’s determination to cement its status as an international hub for cryptocurrency development and fintech innovation. With the EU’s MiCA regime on the horizon, Singapore is likely to join the EU at the forefront of cryptocurrency regulation and attract the attention of lawmakers worldwide as they craft their own regulatory regimes.
Visa moves towards crypto wallet offering
The payment giant Visa International Service Association in October (Visa), a subsidiary of Visa Inc., filed two trademark applications with the United States Patent and Trademark Office (USPTO) covering a wide range of crypto products and services. The trademark applications related to digital wallets, non-fungible tokens and metaverse.
Visa has been active in the crypto space and has partnered with over 65 crypto firms, including wallet services and exchanges to enable crypto payments with their cards. In December 2021, Visa launched its crypto advisory services and in May 2020, Visa filed a patent application for a fiat-linked crypto system using a private permission DLT platform.
Visa’s recent trademark applications cover:
online non-downloadable software for managing digital transactions; non-downloadable virtual goods; non-downloadable virtual goods, namely a collectible series of non-fungible tokens; online non-downloadable software for use as digital currency wallet and storage service software; online non-downloadable software for use as a cryptocurrency wallet.
This development from Visa follows other companies that have filed crypto-related trademark applications with the USPTO in the past year, including American Express, the New York Stock Exchange, Meta and Mastercard, PayPal and Western Union.
Patent and trademark applications in the US are often aggressively pursued by companies in relation to potential projects, and not all applications become final offers. Time will tell if Visa really brings more crypto-enabled products to their huge customer base globally.
The debate is about industry standards for digital assets
CEO and co-founder of FTX, Sam Bankman-Fried, has released a draft of possible digital asset industry standards that could be adopted to encourage clarity and consumer protection pending a full US federal regulatory regime (the Suggestion). Despite positive progress in recent months, the proposed standards are an attempt to propose and open a dialogue on regulation and establish a consensus around industry standards.
The proposal covers hacks and accountability, asset listings, tokenized shares, consumer protection, sanctions compliance, DeFi and stablecoins. It begins by considering ways to negate the impact of hacks that have been a prominent issue in recent months. The proposal proposes a ‘5-5 standard’ as a consensus negotiation standard between an offended protocol and hacker where a hack occurs. The standard would require the hacker to return as much money as is required to ensure the protocol’s reserves are enough to make customers whole, while keeping 5% or $5 million (whichever is lower) as a bug bounty.
Next, and perhaps unsurprisingly, the proposal discusses which digital assets can and cannot be listed on stock exchanges. According to the proposal, FTX’s legal team will do an analysis of assets using Howey test and other relevant case law and guidance. If the asset is considered to be a security, it will be treated as such. If the asset is not found to be a security, FTX will generally treat it as a non-security, unless alternative direction is received from the SEC or a court of competent jurisdiction. Bankman-Fried hopes that registration of digital securities can eventually be done in a way that protects consumers and allows for innovation.
The proposal also focuses on consumer protection and calls for cracking down on assets that misrepresent or make misleading claims to consumers. Bankman-Fried also suggests that systems should not be run on credit as standard, especially for retail. This is because retail investors should not be able to lose more than they have invested on a platform, and as such any credit given by platforms should be scrutinized if it could lead to socialization losses among other innocent investors on the platform.
The proposal’s proposal on sanctions compliance and DeFi, which includes a proposal that DeFi interfaces can be licensed and include sanctions screening, sparked controversy among some DeFi supporters.
The proposal is a useful contribution to the regulatory debate on digital assets and has led to discussion about regulatory standards for the industry. A number of prominent crypto personalities have weighed in with their views on the proposals, including ShapeShift founder Erik Voorhees, who agreed to a live online debate with Mr Bankman-Fried on the merits of the proposed standards. We expect this debate to continue to rage for some time to come.
