Singapore-based FTX investors could not be protected as crashed crypto exchange not licensed here, operated offshore: MAS

SINGAPORE — The Monetary Authority of Singapore (MAS) said on Monday (Nov 21) that it could not protect local investors from suffering losses on cryptocurrency exchange FTX, which crashed earlier this month, as the platform is not licensed here and was run offshore.

MAS said this meant that investors could not be protected from financial losses by steps such as the ring-fencing of assets or ensuring that the platform had backed its assets with reserves.

The regulator also again warned investors of the dangers of investing in cryptocurrencies as it had done repeatedly in recent times.

In its statement, MAS also addressed a misconception on why it treated FTX differently from its rival, Binance, by putting the latter on the investor alert list.

This was because Binance had been actively soliciting users here without a licence while FTX did not do so, said MAS.

The central bank also said that it was impossible to list all the “hundreds” of offshore crypto exchanges and provide information on them.

The investor alert list is publicly available on a page on the MAS website that lists entities offering investment, which may have been wrongly perceived as being authorised or recognised by the central bank.

“The ongoing turmoil in the crypto industry serves as a reminder of the huge risks of dealing in cryptocurrencies. As MAS has repeatedly stated, there is no protection for customers who deal in cryptocurrencies. They can lose all their money,” it said.

The statement on Monday was the second one by MAS addressing questions relating to FTX, which on Nov 11 filed for bankruptcy protection in the United States, with its founder resigning as chief executive shortly after.

The exchange has crashed from a market value of billions of dollars to being potentially worthless, with investors all over the globe facing the prospect of losing savings.

State investment firm Temasek Holdings was among those to lose money, announcing last week it would write down US$275 million it had lost by investing in FTX.

Addressing “some questions and misconceptions” arising from the FTX collapse, MAS said that it has consistently warned the public about the dangers of dealing with unregulated entities, of which FTX was one of them.

MAS pointed out that Binance had gone out of its way to try to attract Singapore investors.

“Binance in fact went to the extent of offering listings in Singapore dollars and accepted Singapore-specific payment modes such as PayNow and PayLah,” said MAS, adding that it had received several complaints about Binance between January and August 2021.

“There were also announcements in multiple jurisdictions of unlicensed solicitation of customers by Binance during the same period,” it added.

These jurisdictions include Italy, Japan, Malaysia, the United Kingdom and Thailand.

On the other hand, there was “no evidence” of FTX soliciting Singapore users specifically while trades on the exchange could not be transacted in Singapore dollars. 

“But as in the case of thousands of other financial and crypto entities that operate overseas, Singapore users were able to access FTX services online,” said MAS.

“Further, on MAS’ referral, the Commercial Affairs Department commenced investigation into Binance for possible contravention of the Payment Services Act. There was no reason to place FTX on the investor alert list as there was no evidence that it had contravened the PS Act.”

On exhaustively providing information and listing on the investor alert list all offshore crypto exchanges, MAS said there are hundreds of such exchanges, on top of thousands of other entities that accept investments in non-crypto assets.

“It is not possible to list all of them and no regulator in the world has done so,” said MAS.

The central bank added that the purpose of the list is to warn the public of entities wrongly perceived as being MAS-regulated, especially those soliciting customers here without licence.

“It does not mean that the thousands of other entities operating offshore, which are not listed on the investor alert list, are safe to deal with,” said MAS.

All MAS-regulated entities are listed in a financial institutions directory on the MAS website, it added.

MAS stressed that dealing in any cryptocurrency on any platform is “hazardous”.

Any crypto exchange licensed in Singapore is currently regulated only to address money-laundering risks, not to protect investors, an approach currently taken in most jurisdictions, said the central bank.

MAS said that crypto exchanges “can and do fail”, and even if the platform is well managed, cryptocurrencies themselves are highly volatile with many losing all value.

The MAS issued a consultation paper on Oct 26 proposing regulatory measures to reduce consumer risks from crypto trading. This is set to close on Dec 21.