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Singapore proposes crypto rules to bolster consumer protection

Singapore’s regulators have ramped up warnings to retail investors over the “hazards” of speculating in cryptocurrencies and outlined proposals to keep consumers safe, after a series of high-profile crypto failures linked to the city-state.

In two consultation papers issued on Wednesday, the Monetary Authority of Singapore proposed restricting retail investors from borrowing money or using credit cards to buy cryptocurrencies and from lending out their digital tokens in search of yields. It also wants crypto exchanges to test would-be crypto buyers to check they understand risks in what it calls a “highly volatile” asset class.

Singapore has generally provided a welcoming environment for the crypto industry. Exchange Binance once described it as a “crypto paradise” and several prominent firms have established themselves there. But regulators have sounded the alarm after a series of high-profile crypto implosions this year, and are proposing restrictions on some of the most popular speculative tools.

“MAS strongly discourages speculation in cryptocurrencies by consumers,” it said. “Several misconduct cases have been reported by international media, including where legal proceedings were commenced against entities that did not have sufficiently robust business conduct practices in place,” it added.

This year, Singapore-based crypto hedge fund Three Arrows Capital collapsed, taking down exchange Voyager Digital with it. An international manhunt is also under way, with a focus on the city-state, to track down Terraform Labs co-founder Do Kwon, whose stablecoin terraUSD imploded in May.

The MAS has stopped short of an outright crypto ban, saying it welcomes the “transformative economic potential” of the asset class. But trading platforms must ensure retail customers were fully aware of risks and had the financial resources to withstand large losses, it said. “Support for a digital asset ecosystem does not mean support for cryptocurrency speculation,” it noted.

The MAS also said so-called stablecoins, which are designed to track the value of real assets such as the dollar in tokenised form, must be properly backed with reserve assets pegged to the Singapore dollar or other major currencies.

Nizam Ismail, founder of Singapore-based Ethikom Consultancy, told the Financial Times some proposals “may be overly prescriptive and go against the grain of Singapore’s regulatory philosophy”.

“The prohibition against purchase of [tokens] by credit cards or by credit could unwittingly encourage retail investors to trade in crypto derivatives, which are largely unregulated,” Ismail added.

Broader proposals include forcing service providers to ensure customer assets are segregated from their own assets and adopting “good industry practices” against unfair trading, including monitoring trading activity and setting out rules governing trading.

“Digital payment token markets have been susceptible to unfair trading practices of market manipulation, misleading conduct and insider trading by nefarious actors,” the MAS said.

Singapore will be likely to encounter the same issues as other jurisdictions in monitoring and controlling trading by its citizens on platforms domiciled overseas or operating outside regulatory oversight. “The problem of unregulated entities operating in this space in Singapore is not accounted for,” said Kelvin Low, a law professor at the National University of Singapore.

The regulator’s proposals are open to public consultation until December 21.

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