MAS says needs to do a better job explaining crypto policy

Singapore’s financial regulators have sent a consistent message: trading cryptocurrencies is fraught with too much risk for non-professional investors, but the digital asset industry holds great promise.

If that seems like a mixed message, the Monetary Authority of Singapore, the city-state’s central bank known as MAS, acknowledged as much at a seminar titled “Yes to Digital Asset Innovation, No to Cryptocurrency Speculation” organized by the bank on Monday.

“What does MAS really want? Well, we know what we want, but I think we need to do a better job of explaining it, said MAS CEO Ravi Menon in his opening remarks at the seminar.

“The digital asset ecosystem is where MAS sees strong potential and is actively promoting,” he said as part of the explanation, adding that cryptocurrencies are useful in a blockchain to reward those who help validate and maintain the transaction record.

“However, outside of a blockchain network, cryptocurrencies serve no useful function except as a vehicle for speculation,” he said. But “banning retail access to cryptocurrencies probably won’t work” as they trade on borderless networks, accessible with a mobile phone.

Another life

“Cryptocurrencies have taken on a life of their own outside the distributed ledger, and this is the source of the crypto world’s problems,” Menon said, arguing that price volatility precludes cryptocurrencies as a viable form of money or investment asset.

See related article: Siled regulatory efforts are unlikely to help bring oversight to the highly decentralized crypto industry

This deepens the mantra that MAS has repeated and followed up with actions such as banning crypto advertising in public areas and crypto ATMs, while emphasizing that it intends for the city-state to be at the forefront of digital asset innovation.

Despite the bans, Menon said research shows that consumers are increasingly transacting with cryptocurrencies.

“Adding frictions on retail access to cryptocurrencies is an area we are considering,” Menon said, which could include customer suitability tests and restricting the use of leverage and credit facilities for cryptocurrency trading.

“Consumers must take responsibility and exercise judgment and caution. No amount of MAS regulation, global cooperation or industry protection will protect consumers from loss if their cryptocurrency holdings lose value.”

Promising

Officials from local companies were on hand to hear the announcement, including blockchain analytics firm Nansen Pte. and trade finance blockchain network developer Contour Pte.

New York-based crypto brokerage Paxos Trust Co. was also in the audience, along with JP Morgan Chase & Co.’s Onyx unit, which claims to be the world’s first bank-led blockchain platform.

“We are encouraged to see policymakers and the industry working together to guarantee regulatory clarity,” Hassan Ahmed, regional director Southeast Asia at Coinbase, said in an emailed response to Discardtheir questions about the MAS seminar.

“The crypto industry is moving so fast that frequent regulatory discussion is important to stay abreast of recent innovations,” said Hong Qi Yu, CEO of Singapore-based Tokenize Xchange, in an emailed response to questions.

At the event, Menon said the most promising use cases for digital assets in financial services are in cross-border payments and settlements, trade finance and capital market activities.

He cited UOB Bank’s issuance of a SG$600 million (USD$429 million) digital bond on Marketnode’s digital asset platform. MAS is also working with DBS Bank, JP Morgan, SBI Group and Marketnode in what was dubbed Project Guardian to test asset tokenization and decentralized finance (DeFi).

The law

Menon said MAS recognizes that a digital asset system needs a medium of exchange for transactions, and the three options are cryptocurrencies, stablecoins or central bank digital currencies (CBDCs).

He reiterated the MAS view that cryptocurrencies lack the three basic characteristics of money – medium of exchange, store of value and unit of account – and are largely driven by speculation.

See related article: Singapore’s central bank says cryptocurrencies have ‘no fundamental value’

MAS recognizes the potential of stablecoins, if they are securely backed by high-quality reserves and are well regulated, Menon said, but seemed more in favor of so-called wholesale CBDCs, or those restricted to use by financial institutions.

“They have the potential to radically transform cross-border payments, which are currently slow, expensive and opaque,” he said.

The central bank does not see a need for retail CBDC, he said, stating that Singapore’s electronic payment systems are fast, efficient and at zero cost.

However, MAS is building the technology infrastructure that will allow the issuance of retail CBDC should conditions change, he said.

Danger

MAS had concentrated on money laundering and terrorist financing risks as key areas of concern with cryptocurrencies and digital assets.

However, Menon said it is expanding this focus to address technology and cyber-related risks, safeguarding retail investors, stability of stablecoins and general financial stability risks.

“Technology and cyber risk are constantly evolving,” Menon said.

Menon added that MAS has shared its concerns with the industry and invited views on measures to protect consumers and will publicly consult on the proposals in October this year.

MAS will also propose consultations on a regulatory approach to stablecoins in the same month.