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Singapore orders digital currency firms to keep customer funds ‘under statutory trust’

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The Monetary Authority of Singapore (MAS) has rolled out draft regulations to govern the activities of industry service providers to protect investors.

A central theme for the new rules is the requirement for digital currency firms to hold customers’ assets in a statutory trust for safekeeping. According to the central bank, the provision of a statutory trust will help customers recover their assets in the event of a black swan event like insolvency.

Other provisions in the draft regulations will see virtual asset service providers carry out daily reconciliation of assets while keeping proper record books. Firms operating in Singapore are also expected to “segregate customers’ assets from its own assets and held in trust” and provide information to clients on any risks stemming from storing their assets with the service providers.

The draft regulation indicates that Singapore’s central bank is keen on improving standards among digital asset custody service providers. Despite the robust nature of custody guidelines, MAS warns consumers to conduct due diligence before investing in digital assets “given the extremely high risk and speculative nature.”

“While the segregation and custody requirements will minimize the risk of loss of customers’ assets, consumers may still face significant delays in recovering their assets in the event of insolvency of the service providers,” MAS stated. “Consumers must also remain vigilant and not deal with unregulated entities, including those based overseas, as they risk losing all their assets.”

The new rules also seek to bar virtual assets service providers in Singapore from facilitating the lending and staking of tokens for retail clients. The central bank announced the launch of a public consultation to “address unfair trading practices” by firms in the space.

According to the statement, MAS is seeking public input for the draft regulations, pledging to publish guidelines to assist the implementation of the new rules by industry players.

Patching itself from the chaos of 2022

Singapore’s new hard stance toward digital currency follows a series of turbulent incidents in 2022 that caught the attention of regulators around the world.

It began with the implosion of Singapore-based digital asset hedge fund Three Arrows Capital (3AC), with the contagion effect spreading to other affiliated entities in the region. Zipmex’s liquidity crisis affected thousands of Singaporean investors as the exchange continued its tussle with creditors after nearly one year.

Things reached a crescendo after FTX’s collapse in November 2022, strengthening the country’s resolve to tighten the screws around the digital currency industry.

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