Singapore is unlikely to head down China’s path in imposing a sweeping ban on cryptocurrencies, but will work to make conditions more stringent for investors who wish to speculate on the digital tokens for profit, including possibly setting leverage limits.
The city-state’s central bank chief on Monday signaled this stance as crypto communities and companies keenly watch the Asian financial hub’s next moves on regulation for the digital tokens sector, amid the collapse of virtual asset players with the fall of coin prices this year.
Ravi Menon, managing director of the Monetary Authority of Singapore, said in a speech during a crypto seminar defining the country’s position that the financial regulator will seek feedback on proposals to protect consumer interests by October, before any new rules are firmed up.
“Banning retail access to cryptocurrencies is not likely to work,” he said, explaining that with mobile phones, easy reach is granted to digital coin exchanges worldwide. “Adding frictions to retail access to cryptocurrencies is an area we are contemplating.”
“These may include customer suitability tests and restricting the use of leverage and credit facilities for cryptocurrency trading,” Menon said. “It is very risky for the public to put their monies in such cryptocurrencies, as the perceived valuation of these cryptocurrencies could plummet rapidly.”
The central bank chief cited the example of Luna, the sister token of the so-called stablecoin TerraUSD, or UST, which was, at one point, worth over USD 100 but tumbled to zero in May, sparking the fall of coin prices across the board into the current “crypto winter.”
The downturn of digital tokens has led to the unravelling of big-name virtual asset players, both within and outside Singapore, from crypto hedge fund Three Arrows Capital, Hodlnaut and Zipmex, to Celsius Network and Babel Finance.
China last year banned all transactions in tokens like Bitcoin and Ethereum over the risks they posed to the country’s financial system, as well as the potential for facilitating financial crime.
Singapore is concerned with crypto-related crimes too, and the risks the emerging industry brings to financial stability, but has chosen to regulate the sector primarily to guard against money laundering and the financing of terrorism, in contrast to an all-out ban.
To this end, digital asset players in the business of facilitating coin transactions have to obtain approval from the MAS to operate in the country. Now, the financial regulator is moving beyond the scrutinizing of crypto firms to limiting the ways retail investors can partake in trading.
Putting restrictions on borrowing for crypto, as Menon suggested in his speech, is a potential regulatory route that has been tried elsewhere to prevent consumers from overburdening themselves with debt.
In Singapore, limits are imposed on the size of loans people can obtain to buy big-ticket items like houses and cars. For crypto, Menon did not elaborate on Monday whether the MAS will set similar restrictions, or ban leverage and credit facilities for token trading completely.
The central bank chief in his speech also noted frustration from digital asset players about the slow process in getting a license to operate in the city-state. Crypto players who apply for a permit may have to wait up to a year or longer for the result, depending on the complexity of their business.
Despite this, Menon said on Monday that Singapore will not compromise its evaluation standards. “Given the large number of applicants for licenses, we have been prioritizing those who demonstrate strong risk management capabilities,” he explained.
“We need to closely scrutinize license applicants’ business models and technologies,” he said. “MAS cannot compromise its due diligence process just to make it easy for digital asset players to get a license.”
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.