Along with the ban on staking and lending, cryptocurrency exchanges are expected to hold user funds in a Trust.
Crypto sector companies in Singapore face new regulations related to user funds. In this sense, the regulatory agency directed firms to place user funds in a Trust before the end of 2023. This is to avoid an FTX-like scenario where funds are mixed or traded.
The guideline would have been sent this Monday, as announced by the local financial institution. With this measure, the authorities seek to advance in the protection of the users’ assets in crypto trading platforms. This step is a follow-up to a public consultation carried out for this purpose in late 2022, when fears about the cryptocurrency market were running high after several shocks during the winter.
New Rules for Crypto Businesses
The rules applied by the Monetary Authority of Singapore (MAS) cover all companies in the crypto sector that operate in the country, where most of these firms focus on exchange platforms or exchanges.
“This will mitigate the risk of loss or misuse of customer assets and facilitate the recovery of assets in the event of the insolvency of a DPT service provider,” the statement from the regulatory agency reads.
The aforementioned consultation with users revealed that most want segregated deposits. This means that the funds are not kept in the same account as the funds of other users. The objective would be to guarantee transparency. Thus, individual custody segregation could provide clients with greater transparency by allowing them to identify and verify their own trends.
On the other hand, a significant number of users said that the non-segregated deposit was also valid.
In any case, the new regulations must be complied with by crypto companies in a relatively short period of time. Consequently, by the end of the year, the client funds will have to be in a trust.
Other Directives from Authorities
The Monetary Authority of Singapore (MAS), the country’s main financial regulator, will enforce a ban on lending and staking for retail clients (individual traders, as opposed to institutional clients), a move that has been on the table since last October.
Apart from the trust request for crypto companies, the regulatory authorities are promoting another series of regulations. This includes a daily reconciliation of client assets, as well as the maintenance of proper books and records.
Meanwhile, the agency is working on a line to ban cryptocurrency-linked service providers from offering options to retailers. The latter includes participation or access to loans. The institutional ones would continue enjoying these services.
Regarding this last point, the MAS says that some respondents have a slightly more open point of view. Thus, they would agree that options are provided to retail investors, but with certain prior conditions, among which there is the mandatory consent of the retail customer.
Added to this is a risk disclosure, although the agency points out that a large part advocated the prohibition of these “high-risk speculative practices.”
The agency stressed that it will closely monitor market developments to ensure a more balanced environment. Under these premises, companies in the crypto sector must immediately begin preparations to comply with the new regulations.
By Marina Meza