Consultation Paper on Proposed Regulatory Measures for Digital Payment Token Services

The Monetary Authority of Singapore (MAS) has published a response paper to its consultations on proposed rule amendments to implement business conduct, consumer access, technology, and cyber risk management requirements on Digital Payment Token Service Providers (DPTSPs) to enhance investor protection and market integrity (please see EventID 22060 for more details in this matter). In this response paper, MAS summarizes the feedback it has received to its consultations and describes its way forward.
#### Background
In an effort to protect retail investors from the risks of investing in crypto-assets or crypto-currencies and so to prevent potential consumer harm and to foster trust and market integrity in relation to the business operations of DPTSPs, MAS proposed to impose additional requirements upon such service providers. Specifically, the Authority sought to require DPTSPs to implement access restrictions for retail customers in form of
– know-your-customer and due diligence exercise obligations;
– a prohibition to offer incentives to trade in crypto-assets and crypto-currencies by retail clients;
– a prohibition to provide financing on any such transactions; or
– a prohibition to accept credit card payments for such transactions.
Furthermore, MAS sought to implement new custody and safeguarding requirements for DPTSPs mandating DPTSPs to safekeep customer assets under a statutory trust segregated from the service provider’s own assets and to daily reconcile customer assets and keep records of such reconciliations. In addition, MAS proposed to require that the custody function must be operationally independent from other business units and that clear disclosures on the risks associated with asset custody by the service provider be provided to customers.
Finally, MAS proposed to impose technology and cyber risk-related management requirements upon DPTSPs, including the necessity to maintain „high availability and recoverability of their critical systems“.
#### Responses and way forward
Generally speaking, MAS will proceed as proposed. As the requirements are essential, so MAS, to ensure (retail) investor protection, there will be no changes to the key obligations outlined in the two consultation papers. However, in view of the responses received – which primarily came from DPTSPs themselves, industry associations, and some financial institutions – MAS will make some modifications to
– clarify certain issues, e.g. the application of the access restrictions to DPTSPs (intermediaries) which are note institutional and accredited investors (AIs), the haircut to be applied to DPT holdings to qualify as an accredited investor, or the inclusion of “learn and earn” programs in the list of initiatives deemed to be inducements.
– align certain provisions with the Securities and Future Act 2001 (SFA) such as the opt-in for accredited investors: this means that all customers with the exemption of institutional investors would be treated as retail investors. If a customer qualifies as an AI based on fulfilling the necessary criteria, he or she would have the option to choose to be treated as an AI.
Furthermore, MAS will provide a 9-month transitional period for implementation of all requirements from the date when the final regulations will be published. The requirements pertaining to asset segregation and custody will apply 6 months after the final regulations will be published.