Singapore to require crypto firms to put user assets into trusts by year-end

MAS is also working to restrict crypto service providers from facilitating lending or staking for retail customers, but not for institutional ones.

Singapore’s central bank is introducing new measures to improve investor protection and market integrity in the cryptocurrency industry.

On July 3, the Monetary Authority of Singapore (MAS) announced new requirements for crypto service providers to hold customer assets into a statutory trust by year-end.

“This will mitigate the risk of loss or misuse of customers’ assets, and facilitate the recovery of customers’ assets in the event of a DPT service provider’s insolvency,” the regulator said.

The new custody measures follow a public consultation on regulatory measures to reduce risks to consumers from crypto trading which was launched in October 2022. According to the MAS, the consultation received “significant interest” from a wide range of respondents.

In the official response to the public consultation, Singapore’s central bank noted that the majority of respondents agreed that digital payment token service providers (DPTSPs) should be allowed to deposit user assets in the same trust account as the assets of its other users.

“However, a few respondents disagreed, suggesting that DPTSPs should be required to segregate each customer’s assets from other customers’ assets in separate blockchain addresses,” the MAS wrote. According to the respondents, individual custody segregation could provide customers with greater transparency by allowing them to identify and verify their own holdings.

Apart from custody requirements, the MAS also required crypto companies to conduct daily reconciliation of customer assets and keep proper books and records. DPTSPs are also required to maintain access and operational controls to customers’ DPTs in Singapore and ensure that the custody function is operationally independent from other business units.

Additionally, the regulator is also working on a proposal to restrict crypto service providers from facilitating lending or staking of their retail customers’ DPTs. For institutional and accredited investors, however, DPT providers may continue to facilitate such activities.

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The MAS added that some respondents suggested allowing crypto firms to offer lending and staking with the condition of retail customer’s consent and risk disclosures. “Others advocated a ban on these high risk and speculative activities,” the regulator noted, adding:

“MAS will monitor market developments and consumer risk awareness as these evolve, and will take steps to ensure that our measures remain balanced and appropriate.”

The latest investor protection-related regulatory developments in Singapore aim to address industry implosions like FTX, which led to customers losing millions of dollars. Additionally, the crypto lending crisis in 2022 significantly impacted firms in Singapore, with major local firms like Three Arrows Capital and Hodlnaut going bankrupt amid the bear market.

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