August 29, 2022

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Singapore mulls crypto leverage rules to reduce sector’s risks

THE MONETARY Authority of Singapore (MAS) is considering more ways to protect consumers who trade cryptocurrencies, joining a push by policy makers and financial regulators across the globe aimed at mitigating the risks of the sector, which remains largely unregulated.

The MAS’ new rules may include customer suitability tests and cutting the use of leverage and credit facilities by retail investors for trading these digital assets, Managing Director Ravi Menon said in a speech on Monday, elaborating on earlier remarks that authorities were planning to expand rules in the sector. It plans to publicly consult on the proposals by October, he said.

“Banning retail access to cryptocurrencies is not likely to work. The cryptocurrency world is borderless.” Menon said in front of a room of more than 50 industry players, with the event also streamed online. “There is greater impetus now among global regulators to enhance regulations in this space. MAS will also do so.”

The pitfalls of such lack of oversight globally have come sharply into focus over the past few months, with a series of high profile company failures triggering and exacerbating a $2-trillion market meltdown. Singapore’s regime for crypto companies has garnered particular attention, given that several entities including disgraced hedge fund Three Arrows Capital and platforms Vauld, Zipmex and Hodlnaut, operated out of the country.

Mr. Menon reiterated a stance that cryptocurrencies’ volatility makes them unsuitable for use as money and “highly hazardous” for retail investors. Tokenization and distributed ledgers, that record the ownership and transfer of ownership of digital assets, offers economic potential however, he said.

MAS had already started tightening crypto investments rules early this year when it required virtual-asset providers to be licensed locally even if they only do business overseas. The central bank further stepped up scrutiny of the sector in recent weeks, sending a questionnaire to some applicants and holders of its digital-payments license seeking highly granular information about their business activity and holdings.

Singapore was early to study blockchain technology and tout its ambitions as a crypto hub. It is now trying to achieve a delicate balance between encouraging blockchain innovation and protecting investors from some of the risks of participating in a nascent market. So far more than 10 entities have permits to operate as digital service token providers out of nearly 200 applicants. — Bloomberg