Singapore mandates crypto firms to secure user assets in trusts by year-end

Singapore takes a decisive step to protect crypto investors, requiring firms to safeguard user assets in trusts by year-end

By Shashank Bhardwaj

Published: Jul 5, 2023 06:43:57 PM IST

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Singapore's central bank, the Monetary Authority of Singapore (MAS), has unveiled regulatory measures to improve investor protection and market integrity in the crypto sector. These measures require crypto service providers to establish statutory trusts to hold customer assets by the end of this year.

The move comes in response to a public consultation conducted by the MAS, which received considerable interest from various respondents. The majority of participants agreed that Digital Payment Token Service Providers (DPTSPs) should be allowed to pool user assets in the same trust account. However, some respondents disagreed, advocating segregating each customer's assets into separate blockchain addresses to enhance transparency.

By requiring crypto firms to hold customer assets in statutory trusts, the MAS aims to mitigate the risk of loss or misuse of these assets and facilitate their recovery in the event of insolvency. Additionally, the new measures necessitate daily reconciliation of customer assets, maintenance of accurate books and records, and operational independence of the custody function from other business units.

In conjunction with the custody requirements, the MAS is exploring restrictions on lending and staking services offered by crypto service providers to retail customers. Some respondents suggested that lending and staking services could be allowed with the consent of retail customers, coupled with appropriate risk disclosures. Others recommended a complete ban on these high-risk and speculative activities.

The MAS emphasised carefully monitoring market developments and consumer risk awareness to ensure these measures' ongoing appropriateness and balance. The aim is to safeguard the interests of crypto investors in Singapore.

These regulatory developments in Singapore come in the wake of incidents that have had a detrimental impact on investors. The implosion of FTX and the crypto lending crisis in 2022 resulted in significant financial losses for customers. Local firms such as Three Arrows Capital and Hodlnaut faced bankruptcy during the bear market.

With these new measures, Singapore aims to address these risks and protect investors from potential losses, ultimately fostering trust and stability in the crypto industry. By enhancing investor protection and market integrity, Singapore's regulatory framework seeks to position itself as a responsible and attractive jurisdiction for crypto businesses and investors.

The writer is the founder at yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash