In response to the bankruptcy of Three Arrows Capital, the Monetary Authority of Singapore has proposed new regulations aimed at regulating the cryptocurrency industry in Singapore. The central bank of Singapore has released two consultation papers on the proposed regulations. These are aimed at regulating the operations of payment token service providers and stablecoin issuers.
The two consultation papers were released on October 26. They are aimed at reducing the risks associated with crypto trading and improving the standards for stablecoin-related transactions. The first consultation paper focuses on the proposed regulations for the digital payment token industry. It also includes proposals related to major cryptocurrencies such as Bitcoin.
The authority noted that the use of leverage or credit in the trading of DPTs could lead to bigger losses than the investment made by a customer. Section 3.20 of the proposed regulations states that DPTSPs should not provide retail customers with credit facilities if they are dealing with fiat currencies or cryptocurrencies. The regulator also proposed that crypto service providers should not accept deposits using credit cards.
In response to the recent failure of several DPTSPs in the cryptocurrency industry, the central bank of Singapore suggested that these entities should ensure that their assets are segregated from other assets. The MAS suggested that DPTSPs should also consider conducting consumer tests to assess the level of awareness of their customers about the risks associated with cryptocurrencies.
Section 4.21 of the paper states that stablecoin issuers should not provide or lend single-currency pegged stablecoins or other cryptocurrencies. They should not trade or participate in the operations of other cryptocurrencies. The paper noted that the restrictions are aimed at mitigating the risks associated with the operations of stablecoin issuers in Singapore. However, they can still be conducted by other financial institutions.
The authority proposed to require stablecoin issuers in Singapore to have a minimum capital of $1 million. It also noted that this amount should be held at all times. The negative effects of the crypto winter of 2022 on the operations of cryptocurrency lenders have been widely reported. Due to the massive market decline, many firms were unable to pay their debts.
Dil Bole Oberoi
