Singapore Signals Change in Stablecoins Regulation After Terra’s Collapse
The Monetary Authority of Singapore, the country’s Central Bank, is reportedly considering imposing some limitations on the use of leverage and credit facilities by retail traders. The move comes as the crypto-friendly country has seen the implosion of several crypto businesses, all of which delivered heavy losses to retail investors.
Singapore-Based Crypto Businesses Fail, Ringing Alarm for Regulators
Singapore has become a hotbed for crypto firms, particularly after China’s crackdown on crypto last year. This is largely attributed to the country’s progressive stance toward the emerging digital asset class. The MAS passed legislation to regulate the crypto industry under its Payment Services Act (PS Act) in 2019, with a focus on money laundering and terrorist financing risks.
However, following the recent exponential growth in crypto adoption, the MAS has ramped up its efforts to overreach the industry. Earlier this year, the MAS ordered Digital Payment Token (DPT) service providers not to promote their services to the general public in Singapore.
Nevertheless, the country’s crypto-friendly stance has helped it attract crypto companies. For instance, Blockchain payment network Terra, which failed in May this year and erased over $40 billion in value, had set up its Southeast Asia hub in Singapore.
Likewise, crypto fund Three Arrows Capital, which filed for Chapter 15 bankruptcy in early July, was also based in Singapore. In addition, Southeast Asia-focused cryptocurrency exchange Zipmex filed for bankruptcy protection in Singapore in late July. Troubled crypto exchanges Vauld and Hodlnaut are two other companies that were operating from Singapore.
Singapore to Restrict Retail Access to Crypto Services
After the unprecedented fall of several major crypto businesses, Singaporean authorities are considering imposing restrictions on the use of leverage and credit facilities to trade cryptocurrencies by retail traders.
The country’s Central Bank may also develop tests to examine customer eligibility for using certain products, Managing Director Ravi Menon reportedly said in a speech on Monday. He added that many retail traders are ostensible “irrationally oblivious” about the trading risks, noting that he plans to publicly consult on the proposals by October.
In a seminar titled “Yes to Digital Asset Innovation, No to Cryptocurrency Speculation,” Menon said that while banning crypto is not an effective move, the Central Bank needs to enhance regulations along with global regulators.
“Banning retail access to cryptocurrencies is not likely to work. The cryptocurrency world is borderless. There is greater impetus now among global regulators to enhance regulations in this space. MAS will also do so.”
Join our Telegram group and never miss a breaking digital asset story.
More Regulations Aimed At Stablecoins
Singapore’s Central Bank also aims to consult industry participants about the regulation of stablecoins by October. This has been a top priority of the government since the collapse of Terra’s algorithmic stablecoin UST, which exacerbated the crypto market condition and led to a nearly $2 trillion crypto wipeout.
Menon said that global regulators will collaborate to impose requirements such as secure reserve backing and timely redemption at par for stablecoins. As reported, there have been several attempts by US regulators to mandate stablecoin issuers to back their digital assets with reserve assets.
For instance, US Congressman Josh Gotthiemer drafted a new bill earlier this year that sought to mandate stablecoin issuers to keep their reserves in assets consisting of US dollars and US government-issued securities. The legislation was called “the most comprehensive and well-thought-out stablecoin” bill by some industry experts.
Do you think Singapore will continue to remain a crypto hub if it restricts retail crypto traders? Let us know in the comments below.