More S’pore consumer protection rules for retail crypto investors on the way

Digital asset firms that are licensed in Singapore will have to comply with rules that protect retail consumers in two phases, in October and in June 2025.

Rules to do with ring-fencing customers’ assets, a crypto firm’s disclosures and risk management controls will take effect on Oct 4. Measures that centre on the assessment of a retail investor’s risk awareness will kick in on June 19, 2025.

In the second phase, licensed crypto firms, also defined as digital payment token (DPT) service providers under the law, are not allowed to offer incentives to get retail customers to sign up with them.

As prices of cryptocurrencies are highly volatile, the use of any form of credit, leverage or instrument such as derivatives contracts that reference cryptocurrencies as the underlying assets are not allowed with retail investors.

These measures, previously outlined by the Monetary Authority of Singapore (MAS), will take effect in June 2025.

In a note issued on Sept 30, law firm Baker McKenzie Wong and Leow said the additional consumer access rules are to be applied regardless of a customer’s residency.

It said crypto firms have to conduct the risk awareness assessment before June 19, 2025, on all existing retail customers before providing or continuing to provide services to them.

The risk assessment can be skipped only in specific circumstances, including when DPT service providers reduce the amount of cryptocurrencies in the retail customer’s account as of June 19, 2025.

The law firm’s financial services principal Stephanie Magnus said when the Payment Services Act first came into force, the primary obligations related to anti-money laundering and countering the financing of terrorism given the high money-laundering risk for DPTs.

She said the updated guidelines ensure that consumers are duly protected and that there is a need for crypto and DPT businesses to level up consumer safeguards and controls.

The Act, which the measures fall under, came into force in January 2020.

Ms Angela Ang, senior policy adviser at blockchain intelligence firm TRM Labs, noted that the earlier safeguarding requirements that kick in in October are meant to protect customer assets in the event of fraud or insolvency.

The new requirements are more focused on reducing uninformed retail participation by raising barriers to entry, she said. “I think the hope here is to deter casual punters and make sure those that do invest, go in with their eyes open.”

Ms Ang said the measures, to be implemented in two phases, address many of the key vulnerabilities that concerned regulators in the aftermath of the 2022 bankruptcy of American crypto exchange FTX and collapse of Terra/Luna the same year.

“They are also in step with the global regulatory landscape, which has seen crypto regulators zero in on consumer protection in the past two years,” she said, adding that TRM’s analysis of 21 key jurisdictions in 2023 found that over half of them had tightened crypto consumer protection rules.

Independent Reserve Singapore chief executive Lasanka Perera said the new regulations might have been anticipated, but the most notable area of impact would be how retail customers are given access to DPT services moving forward.

He noted that the current scope of the measures makes it more challenging for the average consumer to access, gain familiarity and get first-hand experience with DPTs.

But industry players appreciate the fact that current regulations encourage a more informed customer base, which is vital in dealing with high-risk assets like DPTs.

The updates follow MAS’ revised guidelines on consumer protection for crypto players that were published on Sept 19.

In July 2023, MAS published the first tranche of consultation responses and proposed legislative amendments to do with customer asset segregation and custody requirements.

In late November 2023, the regulator finalised its proposed rules for DPT service providers here.

Source: Straits Times © SPH Media Limited. Permission required for reproduction.

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