Singapore proposes ban on borrowing to fund cryptocurrency purchases

SINGAPORE (Oct 26): Singapore has proposed to ban retail investors from borrowing to fund cryptocurrency purchases, part of a slew of suggestions to further tighten the city-state's regulatory regime for digital assets.

Other potential steps in a Monetary Authority of Singapore consultation paper include stopping companies from using tokens deposited by retail investors for lending or staking to generate yields. Staking is the process of earning rewards by deploying coins for crypto applications.

Crypto prices are "highly volatile" and leverage can saddle customers with big losses, the central bank said in the paper on Wednesday, adding the retail sector should not be able to use credit cards or other credit facilities to buy tokens.

The restrictions do not apply to high-net-worth investors, who can qualify for a wider range of investments in the city-state.

Stablecoins

Stablecoins — tokens that are meant to have a constant value — would need to be pegged to the local dollar or a Group of 10 currency and be fully backed by reserve assets of the same denomination, according to the document. Minimum capital requirements would be imposed on issuers too.

Singapore has been hit by a series of crypto blow-ups following a US$2 trillion (RM9.43 trillion) rout in digital assets, a sell-off that took down the TerraUSD algorithmic stablecoin. Regulators globally are grappling with how to protect consumers while harnessing the innovation crypto offers.

The latest proposed steps "could affect trading volumes and revenues of crypto exchanges and lenders who have large retail exposure", said Michael Wu, co-founder and chief executive officer of the Singapore-based Amber crypto platform. Still, the rules "will be good in the long term", he added.

Locking out retail investors from lending tokens or staking will limit their access to decentralised finance or DeFi, which is often touted as important for crypto adoption. But DeFi has been dented by a series of hacks as well as the higher yields now available in conventional investments like Treasuries.

No total ban

Before the consultation, Singapore had already taken steps like clamping down on crypto marketing. It also requires virtual-asset providers to be licensed locally even if they only do business overseas.

The central bank said in Wednesday's paper that it rejected entirely banning cryptocurrency services for retail consumers because that could lead them to unlicensed platforms.

The window for feedback on the consultation paper lasts until Dec 21 after which final guidelines will be set. Digital-asset service providers will then have six to nine months to adhere to the rules.

There is a risk the latest road map is potentially "excessive" if followed in its entirety, said Chia Hock Lai, co-chairman of the Blockchain Association Singapore. The association hopes the monetary authority "will reconsider the merits of effecting some of the proposals at this point in time", Chia said.