MAS publishes investor protection measures for DPT services, issues consultation papers on (1) amendments to Payment Services Regulations, and (2) measures on market integrity in DPT services

13 July 2023

On 3 July 2023, the Monetary Authority of Singapore (“MAS”) announced new requirements for digital payment token (“DPT”) service providers to safekeep customer assets under a statutory trust and other segregation and custody requirements before the end of 2023. These requirements are aimed at mitigating the risk of loss or misuse of customers’ assets and facilitating the recovery of customers’ assets in the event of a DPT service provider’s insolvency. MAS will also restrict DPT service providers from facilitating lending and staking of DPTs by their retail customers.

MAS is now seeking public feedback on the draft amendments to the Payment Services Regulations 2019 to put these requirements for DPT services under the Payment Services Act 2019 into effect (“Payment Services Regulations consultation paper”). MAS is also seeking public feedback on a separate consultation paper proposing requirements for DPT service providers to address market abuse and unfair trading practices (“unfair trading practices consultation paper”). These consultations will close on 3 August 2023.

These new requirements and consultation papers follow a public consultation conducted by MAS in October 2022 (“October 2022 consultation”). MAS states that the October 2022 consultation received significant interest from a wide range of respondents, with broad support for DPT service providers to:

segregate customers’ assets from its own assets and held in trust;
safeguard customers’ moneys;
conduct daily reconciliation of customers’ assets and keep proper books and records;
maintain access and operational controls to customers’ DPTs in Singapore;
ensure that the custody function is operationally independent from other business units; and
provide clear disclosures to customers on the risks involved in having their assets held by the DPT service provider.

MAS has also published its response to the consultation feedback on the requirements for segregation and custody of customers’ assets and the restrictions on the lending and staking of retail customers’ DPTs.

MAS intends to effect the proposed amendments to the Payment Services Regulations 2019 by October 2023. Notwithstanding that MAS is still consulting on the draft legislative amendments to the Payment Services Regulations 2019, MAS has stated that DPT service providers should prepare to comply with the policy positions by October 2023, as MAS’ policy positions in relation to segregation and custody requirements have been finalised and published. MAS will also publish guidelines setting out its further expectations on the segregation and custody requirements, on or around the date of publication of the finalised amendments to the Payment Services Regulations 2019.

In addition to the segregation and custody requirements, MAS will proceed with the proposal to restrict DPT service providers from facilitating lending or staking of their retail customers’ DPTs, as these activities are generally not suitable for the retail public. DPT service providers may continue to facilitate such activities for their institutional and accredited investors. MAS will monitor market developments and consumer risk awareness as these evolve and will take steps to ensure that its measures remain balanced and appropriate.

MAS had also consulted on the broad regulatory approach on market integrity in the October 2022 consultation. Most respondents agreed with MAS’ observations on good industry practices to address market integrity risks, and some respondents suggested that MAS should impose further measures to prevent market abuse and unfair trading practices.

In the unfair trading practices consultation paper, MAS seeks comments on (a) the general requirements for DPT service providers and DPT platform operators, (b) the further requirements for DPT service providers relating to the fair, orderly, and timely handling and execution of customers’ orders and prevention and detection of unfair trading practices, (c) the proposed provisions relating to prohibited conduct, insider trading, and prohibitions against unfair trading practices, and (d) the implementation of the regulatory measures. This includes proposed legislative provisions and the types of wrongful conduct that constitute offences.

The proposals in the unfair trading practices consultation paper are made in light of global developments, in particular the International Organization of Securities Commissions’ (“IOSCO”) draft policy recommendations addressing market integrity and investor protection issues in crypto-asset markets and steps taken in other jurisdictions such as the European Union. As stated in the IOSCO recommendations, the regulatory frameworks for DPTs should seek to achieve regulatory outcomes for investor protection and market integrity that are the same as, or consistent with, those required in traditional financial markets. This is premised on the underlying principle of same activity, same risk, same regulatory outcome.