Commenting on the announcement, Assistant Managing Director (Policy, Payments & Financial Crime) at MAS Ms Loo Siew Yee said: “The use of Singpass Face Verification will significantly strengthen the process of digital token set up. This is important as the digital token will be used as a factor to approve subsequent transactions. MAS will continue to work closely with banks on measures to protect customers against scams. We urge consumers to maintain vigilance and avoid falling prey to scams by keeping updated on the latest scam tactics, practising good cyber hygiene and making use of Money Lock.”

Consultation paper on proposed regulatory measures for digital payment token services

MAS said cryptocurrencies are "highly risky and not suitable for the general public". However, they "play a supporting role in the broader digital asset ecosystem, and it would not be feasible to ban them." Therefore, to reduce the risk to consumers from speculative trading in cryptocurrencies, MAS will require that digital payment tokens service providers ensure "proper business conduct and adequate risk disclosure". 

The proposed measures cover three broad areas:

• Consumer access: digital payment tokens service providers will be required to provide relevant risk disclosures "to enable retail consumers to make informed decisions regarding cryptocurrency trading." They must also "disallow the use of credit facilities and leverage by retail consumers" for cryptocurrency trading.

• Business conduct: digital payment tokens service providers will be required "to implement proper segregation of customers’ assets, mitigate any potential conflicts of interest which arise from the multiple roles they perform, and establish processes for complaints handling."
 
• Technology risks: digital payment tokens service providers will be required to "maintain high availability and recoverability of their critical systems." 

MAS noted that nothwithstanding these regulatory measures, consumers need to exercise caution when trading in cryptocurrencies and that regulations "cannot protect consumers from losses arising from the inherently speculative and highly risky nature" of cryptocurrency trading. 

  
Consultation on proposed regulatory approach for stablecoin-related activities

MAS said the current regulatory framework, which primarily addresses money laundering and terrorism financing risks, and technology and cyber risks, will be expanded to ensure that regulated stablecoins have a high degree of value stability.

MAS will regulate the issuance of stablecoins which are pegged to a single currency (SCS) where the value of SCS in circulation exceeds S$5 million. The key proposed issuer requirements relate to:

• Value Stability: SCS issuers must hold reserve assets in cash, cash equivalents or short-dated sovereign debt securities that are "at least equivalent to 100% of the par value of the outstanding SCS in circulation, and these assets must be denominated in the same currency as the pegged currency." Requirements on audit and segregation of reserves, and timely redemption at par value will also apply. 

• Reference Currency: all SCS issued in Singapore can be pegged only to the Singapore dollar or any Group of Ten (G10) currencies.  

• Disclosures: stablecoin issuers will be required to publish a white paper disclosing details of the SCS, including the redemption rights of stablecoin holders.

• Prudential Standards: SCS issuers "must meet a base capital requirement of the higher of S$1 million or 50% of annual operating expenses of the SCS issuer." They are also required to hold liquid assets which are valued at "higher of 50% of annual operating expenses or an amount assessed by the SCS issuer to be needed to achieve recovery or an orderly wind-down."  

Banks in Singapore will be allowed to issue SCS. No additional reserve backing and prudential requirements will apply when the SCS is issued as a tokenised form of bank liabilities given the existing capital and liquidity frameworks applied to banks. 

For non-issuance services, digital payment tokens service providers can offer all types of stablecoins provided that they clearly label the MAS-regulated SCS to distinguish them from the unregulated ones. 

The deadline for responses is 21 December 2022.

Menon talked about a number of key areas including Singapore's strategy to develop a digital asset ecosystem. He said MAS is taking a four-pronged approach to building the digital asset ecosystem:

• first, explore the potential of distributed ledger technology in promising use cases;
• second, support the tokenisation of financial and real economy assets;
• third, enable digital currency connectivity; and
• fourth, anchor players with strong value propositions and risk management.

He also discussed the five areas of risk in digital assets that MAS’ regulatory approach is focused on:

• first, combat money laundering and terrorist financing risks;
• second, manage technology and cyber related risks;
• third, safeguard against harm to retail investors;
• fourth, uphold the promise of stability in stablecoins; and
• fifth, mitigate potential financial stability risks.

MAS said it "does not currently regulate NFTs given the nature of their underlying assets. This is also the stance taken by most other leading jurisdictions."

Regarding digital tokens such as NFTs, MAS takes a "tech-neutral stance and 'looks through' to the underlying characteristics of the token to determine if it is to be regulated by MAS. Should an NFT have the characteristics of a capital markets product under the Securities and Futures Act (SFA), it will be subject to MAS’ regulatory requirements. For example, should an NFT be structured to represent rights to a portfolio of listed shares, it will like other collective investment schemes be subject to prospectus requirements, licensing and business conduct requirements."

MAS said the unnamed issuer had intended to rely on an exemption under the SFA, which allows issuers to make an offer of securities to investors without registering a prospectus with MAS.

However, the exemption from prospectus registration is subject to conditions, including a requirement not to advertise the offer.

"The issuer in this case failed to comply with the advertising restriction when its legal advisers put out a LinkedIn post accessible to the public calling attention to the offer. As such, the issuer would not be able to rely on the exemption from prospectus registration."

The regulator added that the issuer suspended its offering after receiving its warning.

MAS reminded digital token issuers that the offer of securities tokens must comply with all applicable securities laws, including the requirement to register a prospectus with it.

The regulator added that prospectus exemptions under the SFA are subject to conditions, including advertising restrictions.

Finally, the regulator reminded consumers of the need to understand the benefits and risks of any product or service before committing to an investment and of the risks associated with cryptocurrency.

Lee Boon Ngiap, Assistant Managing Director (Capital Markets), of MAS, said:

“Where an offer is made to the public, a prospectus is required to ensure that investors are provided with all the information to make informed investment decisions. Some offers may be made without a prospectus if they are limited to a restricted group of persons or to those who have the means to look after their own interests. Such offers are subject to strict conditions such as advertising restrictions. MAS will not hesitate to act if issuers contravene the disclosure requirements under the SFA.”

The advisory stated that consumers should be mindful of the following risks:

• Risks relating to foreign and online operators.
• Risks relating to sellers without a proven track record.
• Risks relating to insufficient secondary market liquidity.
• Risks relating to investments promising high returns.
• Risks of money laundering and terrorist financing.

Before making an investment decisions, consumers should:

• Make sure they fully understand the benefits and risks of the product or service before committing.
• Assess whether the features of the product or service offered meets their needs.
• Before committing to an investment, consumers should ask, check and confirm:
• Ask the seller as many questions as they need to fully understand the investment opportunity.
• Check if the information provided by the seller on itself or its scheme is true.
• Confirm before investing, the seller or its representative’s credentials by using resources such as MAS’ financial institutions directory, MAS’ register of representatives, or investor alert list.