The Monetary Authority of Singapore (MAS) is inviting views on possible measures to minimise harm to crypto consumers, seeking to publicly consult on the proposals by October this year.
MAS managing director Ravi Menon says the regulatory body has been reiterating the risks of trading in cryptocurrencies since 2017.
“Prices of cryptocurrencies are highly volatile, driven largely by speculation rather than any underlying economic fundamentals. It is very risky for the public to put their monies in such cryptocurrencies, as the perceived valuation of these cryptocurrencies could plummet rapidly when sentiments shift.
“We have seen this happen repeatedly,” says Menon during his opening address at the Green Shoots Seminar titled “Yes to Digital Asset Innovation, No to Cryptocurrency Speculation”.
Menon says the MAS has issued numerous advisories warning consumers that they could potentially lose all the monies they put into cryptocurrencies, citing Luna's sister token stablecoin collapse as an example.
Despite the warnings and measures, consumers are increasingly trading in cryptocurrencies, enticed by the prospect of sharp price increases. “They seem to be irrationally oblivious about the risks of cryptocurrency trading,” he says.
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As customer-related risks have gained the attention of regulators around the world, the MAS is therefore considering further measures to reduce consumer harm. It contemplates adding frictions on retail access to cryptocurrencies which may include customer suitability tests as well as restricting the use of leverage and credit facilities for crypto trading.
That being said, customers must also take responsibility and exercise judgement and caution. “No amount of MAS regulation, global cooperation or industry safeguards will protect consumers from losses if their cryptocurrency holdings lose value,” says Menon.
Meanwhile, the MAS sees good potential in stablecoins, provided they are securely backed by high quality reserves and well-regulated. However, many stablecoins lack the ability to uphold the promise of stability in their value.
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“There are currently no international standards on the quality of reserve assets backing stablecoins. Globally, regulators are looking to impose requirements such as secure reserve backing and timely redemption at par,” says Menon.
To this end, Menon says the MAS will propose for consultation on a regulatory approach for stablecoins — also by October.
As the digital asset ecosystem grows, it will be natural for linkages between the traditional banking system and digital assets to grow, says Menon. Therefore, there is risk of contagion to financial markets through exposures of financial institutions to digital assets.
Hence, the MAS is working closely with other regulators to design a prudential framework for banks’ exposures to digital assets. It will provide banks with clarity on how to measure the risks of their digital asset exposures as well as maintaining adequate capital to address the risks. This will reduce risks of spillovers into the traditional banking system.
“Singapore wants to be a hub for innovative and responsible digital asset activities that enhance efficiency and create economic value. The development strategy and regulatory approach for digital assets that I have described go hand-in-hand towards achieving this. Innovation and regulation are not incapable of co-existing,” says Menon.
