Will Singapore Become the Next Crypto Hub with Tougher Regulations?

At the Singapore FinTech Festival 2022, Ravi Menon, Managing Director at Monetary Authority of Singapore​ (MAS), declared that Singapore wants to be a crypto hub, but not the one for crypto trading and speculation.

MAS seeks to develop an innovative and responsible digital asset ecosystem in Singapore, and it has repeatedly warned that crypto trading is "highly risky and not suitable for the general public" on account of its volatile and speculative nature. 

Bring in Tougher Crypto Regulations

2022 has been a turbulent year for the global crypto market, causing a host of crypto firms to be in deep water, and even some to file for bankrupt protection, including three based in Singapore, namely Hodlnaut, Zipmex and Vauld​. To address these concerns over retail customers' insufficient financial wherewithal to withstand large losses, the local financial watchdog has been stepping up regulations for crypto space.

• Set Higher Bars

The city-state now requires virtual asset service providers which only operate overseas to be licensed​. Previously, companies headquartered in Singapore and not servicing customers in the country weren't subject to anti-money laundering and terrorism financing laws.

MAS will require customers' assets to be segregated from the crypto firms' own assets, for the purpose of minimizing the risk of loss or misuse of customers' assets, and require an independent custodian to hold customers' assets. 

The watchdog holds the idea that the extreme price volatility of cryptocurrencies rules them out as a medium of exchange, while stablecoins are appropriate, provided they are well-regulated. It will require issuers of single currency-pegged stablecoins (SCS) with a circulation value of over SG$5 million to hold a major payment institution licence, while those do not exceed the size threshold need to obtain a standard payment institution licence.

Besides, MAS proposes that SCS issuers hold reserve assets, which can only be held in the form of cash, cash equivalents, or debt securities with no more than three months residual maturity, and be denominated in the same currency as the pegged currency, to back the SCS issued.

Further, it will set a minimum base capital requirement of SG$1 million or 50% of annual operating expenses of the SCS issuer. Also, the country will only allow the issuance of SCS that are pegged to the Singapore dollar or G10 currencies.

• Discourage Crypto Trading

MAS plans to ban the use of leverage and credit facilities for retail traders, and require companies to test the financial knowledge of retail customers. Early this year, it has issued guidelines that prohibit crypto firms from promoting their services in public areas to encourage general public to engage in crypto trading.

Embrace Blockchain Technology

The city-state believes that digital assets and decentralised finance (DeFi) have the potential to transform capital markets. Since China implemented an all-out crackdown on the crypto industry, Singapore has become an attractive destination for crypto companies. Besides, 21.9% of people in the country own crypto assets, ranking 4th in the list of the global crypto ownership list, statistics from the Finder Cryptocurrency Adoption Index showed. 

Despite the market volatility, various crypto companies around the globe are extending their footprints into Singapore, with Blockchain.com, Coinbase​, and Paxos recently getting green light to offer digital payment token services in the country. This brings the crypto firms licensed to operate in Singapore totaled 18, with around 200 remaining on the waitlist. Additionally, Crypto.com, Circle and Hashkey among others have been granted in-principle approval from MAS.

Controversy

Farah Mourad, Senior Market Analyst, XTB​ MENA, deems it forward-looking to bring in reinforced regulations, which may slow down Singapore's expansion in the crypto ecosystem, but will help the city-state develop into a more sustainable crypto hub.

Whereas, Brian Armstrong, co-founder and CEO of the US-based crypto exchange Coinbase​ that secured nod to provide payment services in Singapore just last month, grumbled about the city-state's crypto regulations, criticizing its ambition of developing into a Web3 hub and its plan to block retail trading and self-hosted wallets were incompatible.

​"I would like to see Singapore embrace retail trading and self-hosted wallets," Armstrong added.

Sopnendu Mohanty Chief Fintech Officer, MAS, noted that retail investors today were "exposed to risks they do not understand they are taking." 

"We believe that Web 3.0 is the future and what we want to do is to ensure that the money which can transact on this ecosystem is considered a safe asset, safe currency. As long as that is the direction, we are OK," added Mohanty.

Wrap-up

Singapore is one of the top global financial centers, and it is world's 4th largest economy regarding GDP per capita. Additionally, in terms of the value of crypto assets received in the year to the end of June, with about $100 billion, Singapore got ahead of its formidable contender Hong Kong, with the latter's total standing at $74 billion, according to Chainalysis.

A chain of collapse of crypto firms this year is making people become more aware the the importance of regulation, which has potentially far-reaching and significant effects on developing a sustainable crypto ecosystem. Introducing stringent and prudential regulations for crypto industry recently plus its powerful economic strength, therefore, might reinforce Singapore's position on the global crypto hub map.