Singapore is exploring restricting retail access to cryptocurrencies: MAS chief Ravi Menon

MAS is contemplating having customer suitability tests and restricting the use of leverage and credit facilities for crypto trading. PHOTO: REUTERS

SINGAPORE - The city’s regulators are looking at making it harder for the public to buy cryptocurrencies, but will not ban such trading activities.

The Monetary Authority of Singapore (MAS) is contemplating having customer suitability tests and restricting the use of leverage and credit facilities for crypto trading, its chief Ravi Menon said at a seminar on Monday (Aug 29).

MAS regards cryptocurrencies as unsuitable for use as money and as “highly hazardous” for retail investors to dabble in as they are extremely volatile, he said.

The market is fraught with risks of market manipulation and speculation in crypto “is what MAS strongly discourages and seeks to restrict”.

But many consumers “seem to be irrationally oblivious” and are still enticed by the prospect of sharp crypto price increases.

Given that the digital asset space is borderless, banning retail access to crypto is not likely to work, Mr Menon added. “With just a mobile phone, Singaporeans have access to any number of crypto exchanges in the world and can buy or sell any number of cryptocurrencies.”

Since January this year, MAS has restricted digital asset players from promoting cryptocurrency services in public spaces. 

A few months later, Singapore-based virtual asset service providers doing business overseas were required to be licensed in the city.

Now, the regulator is under pressure as investors cry foul following the crash of stablecoin TerraUSD and sister token Luna in May. That sparked a domino effect that has landed key players including hedge fund Three Arrows Capital, exchanges Zipmex and Vauld, as well as lender Hodlnaut, in insolvency woes.

Withdrawals were suspended as the firms sought legal protection from creditors, leaving investors high and dry.

The crash coincided with and worsened a crypto rout that sent prices of crypto darling Bitcoin to under US$20,000, which is a far cry from its peak of US$60,000 in November last year. 

Speaking to a crowd of about 100 in a session also streamed online to nearly 3,000, Mr Menon said the industry will hear about MAS’ proposals on how to regulate stablecoins by October. 

MAS sees good potential in stablecoins but they have to be securely backed by high-quality reserves and are well regulated, Mr Menon said.

Globally, regulators are looking to impose stablecoin requirements such as secure reserve backing and timely redemption at par by then too, he added.

On central bank digital currencies (CBDCs), the regulator said it sees potential for wholesale CBDCs, especially for cross-border payments and settlements. But it does not see a compelling case for retail CBDCs.

A retail CBDC aims to take on traditional attributes of physical cash and would be used by consumers and businesses, while a wholesale CBDC, would be used by financial institutions.

As the digital asset ecosystem develops, the links between the traditional banking system and digital assets will grow.

MAS is working closely with other regulators to design a prudential framework for banks’ exposures to digital assets.

It will provide banks with clarity on how to measure the risks of their digital asset exposures, maintain adequate capital reserves to address these risks and lower the risks of spillover into the traditional banking system, Mr Menon said.

He also touched on the industry’s frustration with MAS’ lengthy licensing process.

So far, about a dozen entities have permits to operate as digital service token providers out of nearly 200 applicants.

MAS, Mr Menon said, cannot compromise on its due diligence process just to make it easy for digital asset players to get a licence.

“Given the large number of applicants for licences, we have been prioritising those who demonstrate strong risk management capabilities and the ability to contribute to the growth of Singapore’s fintech and digital asset ecosystem,” he noted.

Mr Desmond Yong, chief strategy officer at licensed payment platform Digital Treasures Center, said Singapore is an attractive destination for companies to set up headquarters given the pro-business policies such as competitive corporate tax and grants available. 

So, Singapore “can be the hub for innovation and connectivity with other players in the ecosystem” even as regulation tightens for retail investors, Mr Yong said.

Founder of blockchain fintech firm RockX Chen Zhuling said Singapore’s value proposition to crypto companies was never about the domestic retail market.

What Singapore offers is its “large institutional base with access to many high net worth individuals”, as well as a stable and business-friendly environment. 
But hiring remains a challenge in Singapore.

So, many firms are hedging their operations by making the Republic their headquarters in name “but locating other functions such as research and development and operations in tangential markets”. 

This, Mr Chen said, is similar to how global banks and internet companies are using Singapore as a base of operations.

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