“Many retail customers may not have sufficient knowledge of the risks of trading [cryptocurrencies], leading them to take on higher risks than they would otherwise have been willing, or are able, to bear,” the bank said in its 35-page consultation paper.
Cryptocurrency companies, it added, have “a responsibility to guard against consumers participating in a market that they do not fully understand”.
According to the MAS, the measures are set to be discussed with industry players before being first introduced as guidelines then eventually written into law.
Both cryptocurrency entities that have been granted licences or in-approval licences from the regulator – including Coinbase and Crypto.com – and firms operating under an exemption while awaiting approval would have to comply with the rules, which do not apply to accredited or institutional investors.
Wednesday’s development came amid a global push by regulators to better govern the cryptocurrency space.
Singapore had earlier positioned itself as a global hub for the industry alongside rival cities such as Dubai, but it has since been troubled by a wave of recent high-profile controversies, largely driven by the crash of the so-called stablecoin TerraUSD.
Three Arrows Capital, a cryptocurrency hedge fund based in the city state, collapsed in June, and cryptocurrency lender Hodlnaut has been placed under interim judicial management by the Singapore courts.
Authorities have stepped up their messaging in recent months, warning citizens about the speculative nature of cryptocurrencies that can result in investors being hit with huge losses.
This was in addition to a ban in January on cryptocurrency marketing or advertising in public spaces, which saw the removal of crypto ATMs and advertisements plastered around railway stations.
Ravi Menon, Singapore’s central bank chief, made it clear in August that authorities strongly discouraged cryptocurrency trading for retail investors as it was “highly hazardous”, but said they saw more value in digital assets and stablecoins, tokens whose values are typically tied to fiat currencies.
On Wednesday, the MAS again stressed in a press release that cryptocurrency trading was “highly risky and not suitable for the general public”.
The central bank added that it had considered entirely banning cryptocurrency trading for retail consumers, but it said such a move would likely be limited in its effectiveness given the cross-border nature of trading.
Cryptocurrencies, it said, also played a supporting role in the broader digital asset ecosystem, so its proposed measures were more targeted.
Apart from restricting consumer access, the MAS said in its consultation paper that it was also considering enacting rules to better govern how cryptocurrency companies conduct their business.
Regulations go hand in hand with innovation in financial services
For example, it proposed that customers’ assets be kept separate from the companies’ own to mitigate the risk of loss or misuse of assets, and said it also planned to restrict cryptocurrency platforms from lending retail investors’ assets.
It said it was considering putting in place a transition period of between six and nine months for firms to comply with the new guidelines.
Meanwhile, in a separate set of consultation papers, the central bank sought to expand its existing regulatory framework on stablecoins, noting that they have the potential to be a “medium of exchange to facilitate transactions in the digital asset ecosystem”.
Ho Hern Shin, deputy managing director of financial supervision at the MAS, said the proposed measures marked a milestone in Singapore’s strategy of fostering an “innovative and responsible” digital asset system. “Regulations go hand in hand with innovation in financial services,” she said.
