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Singapore has laid final proposals for regulating Digital Payment Token (DPT) service providers in a move that tightens the nose on retail investors. Under the proposals, retail customers dealing with regulated DPT providers in Singapore will be barred from purchasing digital assets using local credit cards.

The Monetary Authority of Singapore (MAS) also prevents DPTs from offering incentives to retail customers to trade cryptocurrencies. They must not provide financing, leverage, or margin transactions. DPT services must also conduct risk awareness assessments for retail customers trading cryptocurrencies.

MAS will need digital asset service providers to categorise all customers as retail by default, except for institutional investors. In addition, crypto holdings will not be factored in assessing the customer’s net worth.

The updated measures are a product of responses to the MAS consultation paper for regulating digital payment token services. MAS says the rules will discourage speculations in risky cryptocurrency trading. MAS Deputy Managing Director for Financial Supervision Ho Hern Shin cautioned;

While these business conduct and consumer access measures can help meet this objective, they cannot insulate customers from losses associated with the inherently speculative and highly risky nature of cryptocurrency trading.

Ho Hern Shin urged consumers to exercise caution when seeking DPT services, warning Singapore investors against unregulated entities. Users are also cautioned against using overseas digital asset service providers. The regulations will come into effect in phases starting mid-2024.

Singapore’s move comes amid increased concerns over the risks to financial stability posed by cryptocurrencies. The catastrophic collapse of FTX in late 2022 and other crypto firms has fueled increased crypto scrutiny and calls for regulation. Singapore responded to the turmoil by calling for an enhanced sector oversight.

MAS Managing Director Ravi Menon believes cryptocurrencies have failed the test of digital money. Earlier this month, Menon suggested that the sharp speculative swings of cryptocurrencies make them perform poorly as a store of value or medium of exchange. Instead, Menon recommends stablecoins or digital assets tied to legal tender, which he says can play a crucial role, if regulated, to complement central banks’ digital currencies (CBDCs).

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