Singapore Introduces Stringent Regulations on Digital Currency, Custody Services
The Monetary Authority of Singapore (MAS) has unveiled a slew of amendments to the Payment Services Act, aimed at bolstering oversight in the burgeoning digital currency market.
Regulating Digital Payment Token Service Providers
The updated Act now regulates three additional services:
- Digital Asset Custody: Ensuring the safekeeping and secure management of cryptocurrency assets.
- Payments or Transfers Involving Tokens Without Physical Possession: Regulating transactions that involve tokens without physical possession.
- Cross-Border Payments Regardless of Funds Location: Regulating payments regardless of whether funds are within Singapore.
Existing DPT service providers must notify MAS within 30 days to comply with the new requirements.
Guidelines for Digital Asset Custody
MAS has published detailed guidelines on digital asset custody, following a public consultation in November. The guidelines require:
- Segregation of Assets: Customers’ digital assets held in trust must be segregated from those of the service provider.
- Cold Wallet Storage: At least 90% of customer assets must be stored offline in cold wallets.
- Dispersing Control over Customer Assets: Service providers may use multi-party computation (MPC) wallets to divide private keys into several shares, achieving this level of security.
The guidelines emphasize the importance of dispersing control over customer assets, with MAS deeming it acceptable for transactions to proceed if at least two out of three shares are required for approval.
Other Key Requirements
Other key requirements include:
- Managing Conflicts of Interest: Service providers must manage conflicts of interest.
- Disclosing Information to Customers: Service providers must disclose information to customers.
- Issuing Monthly Statements: Service providers must issue monthly statements.
The MAS established these rules after extensive consultations with industry stakeholders.
Positioning Singapore as a Hub for Fintech and Blockchain Development
The new regulations aim to strike a balance between fostering innovation in the digital currency space while ensuring consumer protection and preventing financial instability. With Singapore positioning itself as a hub for fintech and blockchain development, the revised Payment Services Act is seen as a major step towards establishing clear guidelines for the sector’s growth.
MAS Stance on Cryptocurrencies
MAS has consistently warned that cryptocurrencies are unsuitable investments for retail consumers. The guidelines reflect this stance by mandating that service providers prevent retail customers from engaging in activities such as pledging, lending, or staking their digital assets.