SINGAPORE — To further reduce consumer harm caused by volatile cryptocurrency investments, the Monetary Authority of Singapore (MAS) is considering implementing measures such as customer suitability tests and restricting the use of credit facilities for cryptocurrency trading.

MAS' managing director Ravi Menon said on Monday (Aug 29) that the central bank is contemplating these moves to add “frictions” on retail access to cryptocurrencies, especially since an outright ban is unlikely to work.

"MAS regards cryptocurrencies as unsuitable for use as money and as highly hazardous for retail investors," he stressed in his speech on Monday addressing players and stakeholders of the crypto industry during a seminar.

This is on the back of a few cryptocurrency trading platforms here seeking creditors’ protection in recent months, locking up retail investors' money in the process.

The developments, which followed the collapse of TerraUSD and its sister token Luna at the start of the year, raised questions on how consumers can be better protected.

During his speech, Mr Menon also sought to further clarify MAS’ stance towards the crypto ecosystem, as he acknowledged that the authority has been seen by some people as sending mixed signals with regards to crypto and digital assets.

RISKS OF CRYPTOCURRENCY SPECULATIONS

Mr Menon said that MAS regards cryptocurrencies as unsuitable for use as money, and calls it “highly hazardous for retail investors”.

This is because these tokens lack three fundamental qualities of money: A medium of exchange, store of value and unit of account.

He acknowledged that they serve a useful function within a blockchain network.

“But outside a blockchain network, cryptocurrencies serve no useful function except as a vehicle for speculation,” he said, highlighting that MAS has been issuing warnings about their risks since 2017.

“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,” he said.

He also pointed to how since the start of the year, MAS has restricted the promotion of cryptocurrency services at public spaces, which led to the dismantling of Bitcoin Automated Teller Machines and the removal of advertisements.

Yet, despite such moves and multiple warnings by the authorities, surveys have shown that consumers are increasingly trading in the volatile coins, in line with global trends.

Many are enticed by the prospect of sharp price increases and “irrationally oblivious about the risks” of trading, he noted.

Therefore, MAS is considering more measures to reduce consumer harm, such as by “adding frictions” on retail access to cryptocurrencies.

“These may include customer suitability tests and restricting the use of leverage and credit facilities for cryptocurrency trading,” he said.

Outright banning access, he said, is not likely to work, owing to the borderless nature of the cryptocurrency world.

“With just a mobile phone, Singaporeans have access to any number of crypto exchanges in the world and can buy or sell any number of cryptocurrencies.”

REGULATIONS ALONE NOT ENOUGH

Mr Menon said that safeguarding consumers from harm requires a multi-pronged approach beyond just regulations.

First is global cooperation, which is important to minimise regulatory arbitrage, given that cryptocurrency transactions can be conducted from anywhere around the world.

The industry itself, too, has an important role to play in co-creating sensible measures to protect consumer interests.

“MAS has been sharing its concerns with the industry and inviting views on possible measures to minimise harm to consumers. We will publicly consult on the proposals by October this year,” he said.

Just as importantly, consumers must 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.”

Mr Chia Hock Lai, co-chairman of the Blockchain Association Singapore, welcomed the potential move to make cryptocurrency trading less accessible, adding that the troubles plaguing Singapore-based platforms and affecting their retail traders demonstrate that “retail consumers are still vulnerable” despite MAS’ warnings. 

The association works to empower its members and the community to leverage blockchain technology for business growth.

Other possible next steps, Mr Chia said, may include self-regulation from within the industry by “classifying cryptocurrencies according to risk profiles” and subjecting them to different trading limits for retail investors.

Mr Alex Svanevik, chief executive officer of Nansen, a Singapore-based blockchain analytics platform, said that the most important safeguard for consumers is to “add more transparency”.

“Consumers should know what’s happening on the back-end of an entity where they are depositing money,” he told TODAY in reference to cryptocurrency lending and exchanges. With this, customers will know where assets are lent or deployed and have a clearer picture of the risks they are undertaking.

He added that such platforms should also declare these to regulators when applying for a licence so that they can be monitored.

Going forward, Mr Chia stressed that any steps taken in future to add more safeguards should be done in consultation with the industry.

REGULATION AND INNOVATION NOT CONTRADICTORY

Mr Menon acknowledged that the inherent complexity of the crypto space has made it challenging for the authorities to clearly communicate their stance towards it, leading to some people concluding that MAS is sending “mixed signals”.

He said that the tough stance against cryptocurrency trading does not contradict MAS’ facilitative approach to digital asset activities and crypto technologies in general.

“Crypto technologies are promising and there is great potential to improve financial services — this is a common goal shared by MAS, the financial industry and the financial technology community,” he said.

In pursuit of this goal, Singapore continues being supportive towards innovation in the space because it sees value in certain components of the broader digital asset ecosystem, he added.

In cross-border payments and settlements, wholesale settlement networks using distributed ledger technologies such as Partior — a joint venture among DBS bank, financial services firm JP Morgan and state investor Temasek Holdings — are achieving reductions in settlement time from days to mere minutes, he noted.

Benefits may also be seen in the trade finance and capital markets.

MAS’ development strategy makes Singapore one of the most conducive jurisdictions for digital assets, but its evolving regulatory approach also makes Singapore “one of the most comprehensive” in managing risks and “among the strictest” in discouraging retail investments.

In all, Mr Menon said that innovation and regulation can co-exist and are not contradictory.

“It is a synergistic and holistic approach to develop Singapore as an innovative and responsible global digital asset hub.”