Singapore MAS proposes to ban cryptocurrency credits

The Monetary Authority of Singapore (MAS) is introducing proposals to better regulate the cryptocurrency industry in the aftermath of the bankruptcy of the Singaporean crypto hedge fund Three Arrows Capital (3AC).

The central bank of Singapore has issued two consultation papers on proposals for regulating the operations of digital payment token service providers (DPTSP)​​ and stablecoin issuers under the Payment Services Act.

Published on Oct. 26, both consultation papers aim to reduce risks to consumers from crypto trading and improve standards of stablecoin-related transactions.

The first document includes proposals for digital payment token (DPT) services or services related to major cryptocurrencies like Bitcoin (BTC), Ether (ETH) or XRP (XRP).

According to the authority, “any form of credit or leverage in the trading of DPTs” would result in the “magnification of losses,” potentially leading to bigger losses than a customer’s investment.

In section 3.20, MAS proposed to ban DPTSPs from providing retail customers with “any credit facility,” whether in the form of fiat currencies or crypto. According to the regulator, crypto service providers should also not be allowed to accept any deposits made using credit cards in exchange for crypto services.

“MAS proposes that DPTSPs should ensure that customers’ assets are segregated from the DPTSPs’ own assets, and held for the benefit of the customer,” the central bank noted, referring to the recent failure of several firms in the crypto industry, including 3AC’s insolvency in June.

Other than that, the MAS also suggested that DPTSPs should consider adopting consumer tests to assess retail customers’ knowledge of risks associated with crypto.

The second consultation paper provides proposals for a regulatory approach for stablecoins in Singapore, providing a set of business and operational requirements for stablecoin issuers.

In the section 4.21 of the document, MAS proposed to restrict stablecoin issuers from lending or staking single-currency pegged stablecoins (SCS), as well as from lending or trading other cryptocurrencies.

“This is to ring fence and mitigate risks to the SCS issuer in lieu of a comprehensive risk-based capital regime. Such activities can still be conducted from other related entities,” the consultation paper reads.

The regulator also proposed to introduce a minimum base capital of $1 million or 50% of annual operating expenses of the SCS issuer. The capital should be held at all times and include liquid assets, MAS added.

The regulator invited interested parties to submit their comments on the proposals by Dec. 21, 2022.

As previously reported, the crypto winter of 2022 has become particularly harmful for cryptocurrency lenders as many such firms became unable to pay out their obligations due to a massive market drop. Some Bitcoin analysts are confident that crypto lending can still survive this bear market but they need to solve issues related to short-term assets and short-term liabilities.