Singapore’s Regulatory Agency Intends To Prohibit Crypto Trading With Borrowed Funds

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Last Updated on October 27, 2022 by Bitfinsider

The Monetary Authority of Singapore (MAS) has recommended additional regulations for retail cryptocurrency investors, including a prohibition on borrowing money for trading.

The recommendations are a part of a consultation paper that MAS published in an effort to further tighten the nation’s regulatory framework for cryptocurrencies. After several prominent cryptocurrency companies, including Three Arrows Capital (3AC) and Celsius that failed this year, the rules have been introduced. Vauld, Zipmex, and Hodlnaut are among the others undergoing legal reorganization procedures in Singapore.

The regulator reaffirmed that using credit or leverage in trading could result in losses that are higher than the initial investment. It aims to prevent cryptocurrency service providers from providing leveraged and debt-financed trading, including trading using credit cards.

“MAS will adopt a risk-focused approach to regulating the digital asset ecosystem,” the central bank announced. “To facilitate innovation in digital assets, regulations need to be clear and proportionate to the risks posed. These regulations should be periodically reviewed to ensure that they remain relevant, given the pace of innovation.”

The regulator has also suggested rules that would prohibit cryptocurrency service providers from giving free trading credits or tokens or other rewards to retail customers. Airdrops, in which a company gives free tokens to a select group of users, may fall under this category.

Additionally, MAS wants to prevent cryptocurrency service providers from lending out the tokens that belong to their retail clients.

“MAS proposes that Digital Payment Token Service Providers (DPTSPs) should not mortgage, charge, pledge or hypothecate the retail customer’s Digital Payment Tokens (DPTs),” the consultation paper stated. “For non-retail customers, DPT service providers should provide a clear risk disclosure document and obtain the customer’s explicit consent.”

Given that yields and staking rewards are frequently supplied through lending out customers’ crypto assets, it is not immediately evident if the proposed action will have an impact on crypto yield-providing and staking businesses.

A second consultation paper on stabilizing stablecoins was also released by MAS today, focussing on “Single-Currency pegged Stablecoins (SCS).”

It suggests limiting stablecoin issuance to those backed by the Singapore dollar or the currencies of the Group of Ten. All reserve assets used to support the SCS in circulation must be held by issuers in segregated accounts, apart from their own assets.

According to Zhuling Chen, founder and CEO of Singapore-based non-custodial staking service provider RockX, the new laws would impede Singapore’s growth as a hub for web3 innovation on a worldwide scale. He claimed Singapore “may lose its attractiveness as a destination for global web3 companies to build the latest crypto products and services. It will also make it more difficult to hire the best crypto and tech talent, using the country as a base to serve retail markets overseas.”

For some months, MAS has been taking action against the cryptocurrency industry. In order to prevent consumers from trading cryptocurrency impulsively, the regulator earlier this year outlawed cryptocurrency companies from advertising their services in public places, including through print and online ads and ATM placements.

Feedback on the consultation documents is welcome until December 21. Following then, definitive rules will be established. After that, cryptocurrency companies have six to nine months to follow the rules.

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