The Monetary Authority of Singapore has announced new requirements for digital payment token (DPT) service providers to safekeep customer assets under a statutory trust before the end of the year in order to mitigate the risk of loss or misuse of customers’ assets.
This will also facilitate the recovery of assets in the event of a DPT service providers’ insolvency, the central bank says.
The MAS will also restrict DPT service providers from facilitating lending and staking of DPT tokens by their retail customers.
These measures are introduced following a public consultation launched on Oct 26, 2022 on regulatory measures to enhance investor protection and market integrity in DPT services.
The MAS says the consultation received significant interest from a wide range of respondents, with broad support for DPT service providers to segregate customers’ assets from its own assets and held in trust; safeguard customers’ monies; as well as ensure that the custody function is operationally independent from other business units, among others.
The central bank is now seeking public feedback on the draft legislative amendments to the Payment Services regulations to put these requirements into effect. The MAS will also publish guidelines to support consistent implementation by the industry.
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Restricting lending or staking of retail customers
The MAS will proceed with the proposal to restrict DPT service providers from facilitating lending or staking of their retail customers’ DPTs as these activities are generally not suitable for the retail public.
Staking allows investors to lend their coins to a developer to support the operations of a blockchain network.
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DPT service providers may continue to facilitate such activities for their institutional and accredited investors, the MAS clarifies.
The central banks received diverse views on this proposal. Some respondents suggested allowing DPT service providers to offer these activities with the retail customer’s consent and risk disclosures, while others advocated a ban on these high risk and speculative activities. The MAS will monitor market developments and consumer risk awareness as these evolve.
Following the MAS’s consultation on the broad regulatory approach on market integrity in the October 2022 public consultation, most respondents agreed with MAS’ observations on good industry practices to address market integrity risks.
Some suggested that the MAS should impose further measures to prevent market abuse and unfair trading practices. To follow up more specifically, MAS is issuing a separate consultation paper proposing requirements for DPT service providers to address unfair trading practices.
The consultation paper will also set out legislative provisions and the types of wrongful conduct that constitute offences.
Interested parties should submit their comments on the proposed legislative amendments as well as the proposed regulatory measures to address market integrity risks by August 3.
