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Last week, the Monetary Authority of Singapore (MAS) published two separate advisory documents proposing new regulatory measures for cryptocurrencies in the country. The first paper seeks to reduce consumer risks for investing in cryptoassets, and the second covers improved standards for activities related to stablecoins. MAS admits in its publication that a complete ban is impractical due to the proliferation of cryptocurrencies. However, the market requires a review of regulatory safeguards to ensure proper risk management for consumers, investors and businesses.
The first document published by the agency focuses on the consumer protection aspect of crypto-asset regulation. As stated in the press release: “The proposed measures cover three broad areas:
- Access to consumers. DPT [digital payment tokens or cryptoassets] service providers will be required to provide relevant risk disclosures to enable retail consumers to make informed decisions regarding cryptocurrency trading. They must also prohibit the use of credit facilities and leverage by retail consumers to trade cryptocurrencies.
- Business Conduct. DPT service providers will be required to implement appropriate segregation of customer assets, mitigate any potential conflicts of interest arising from the multiple roles they perform and establish processes for handling complaints.
- Technological risks. Similar to other financial institutions such as banks, DPT service providers will be required to maintain high availability and recoverability of their critical systems.”
MAS also notes that rules and regulations alone cannot protect consumers. Digital and financial literacy are extremely important to protect consumers from fraud and risk. Financial education is an opportunity for public and private sector actors to work together for the common good.
Regarding the regulation of stablecoins, the MAS distinguishes between stablecoins pegged to fiat currencies – single currency pegged stablecoins (SCS) – and those that are algorithmically pegged, also known as algorithmic stablecoins or stablecoins tied to a basket of currencies. Multi-currency pegged stablecoins and algorithmic stablecoins will continue to be regulated as DPTs due to their volatility. For SCS, a new reporting regime is proposed that more accurately reflects the utility and functionality of these assets.
As pointed out in the publication: “MAS intends to introduce a new regulated activity ‘Stablecoin Issuance Service’ under the Law on PS. The regulatory objective is to maintain a high degree of value stability in the SCS. Generally, an entity that is headquartered in Singapore and performs the function of controlling the overall supply, minting and burning of SCS, qualifies in the new category mentioned above. Accordingly, all regulatory obligations for this new activity will be placed on this entity.”
At a high level, the new regulatory requirements for SCS are as follows:
- “Value stability. Issuers of SCS must hold reserve funds in cash, cash equivalents or short-term government debt securities that are at least equivalent to 100% of the face value of outstanding SCS in circulation.
- Reference currency. All SCS issued in Singapore can only be pegged to the Singapore dollar or any Group of Ten (G10) currency.
- Disclosures. Stablecoin issuers will be required to publish a white paper disclosing the details of the SCS, including the redemption rights of stablecoin holders.
- Prudential Standards. SCS issuers must, at all times, meet the basic capital requirement of greater than value [1 million Singapore dollars] or 50% of the annual operating expenses of the SKS issuer. They are also required to hold liquid assets that are estimated to be more than 50% of annual operating expenses or an amount estimated by the issuer of the SCS to be necessary to achieve a recovery or an orderly shutdown.”
State securities regulators file enforcement actions against fraudulent NFTs
Last week, the Alabama Securities Commission, the Kentucky Department of Financial Institutions and the Texas State Securities Commission filed a coordinated enforcement action against the sale of fake NFTs issued by a company in the state of Georgia.
A Georgia-based company – Slotie – has been accused of selling over 10,000 Slotie NFTs, which are similar to stocks or shares in that NFTs provide owners with a vested ownership interest in the casino and the ability to passively share in the profits. The amount of passive income generated for users is determined by the rarity of the Slotie NFT held.
According to a press release issued by the Texas State Securities Commission: “State securities regulators discovered that Slotie illegally and fraudulently traded Slotie NFTs and Slotie Junior NFTs. For example, they accused Slotie of concealing its assets and liabilities, the expected use of capital, the identity of casino partners and key risks related to the casino metaverse. They also argued that Slotie was violating state registration laws, which are important statutes designed to protect investors.”
It added: “Government securities regulators have taken the lead in warning investors about new investment schemes related to the metaverse. Although blockchain technology, digital assets, and the metaverse are generating widespread public interest, bad actors are now exploiting their interests to perpetrate fraudulent schemes.”
Kraken closes accounts for Russian users
As the European Union imposes new sanctions against Russia in light of the country’s invasion of Ukraine, US crypto exchange Kraken has joined a growing list of companies closing the accounts of their Russian users.
In an email sent to Kraken users, the company stated that Russian users affected by the policy change will still be able to withdraw their funds from the platform – but that’s the only functionality that will be available to them.
During the initial Russian sanctions issued many months ago, former Kraken CEO Jesse Powell took a public stance against shutting down the accounts of Russian users, stating that “Bitcoin embodies libertarian values, and as such, the company will not restrict Russian users without a legal requirement to do so.”
Regulation for the implementation of the NFT law
