MAS Publishes Investor Protection Measures for Digital Payment Token Services

The Monetary Authority of Singapore (MAS) has published a press statement to announce upcoming new requirements for Digital Payment Token Service Providers (DPTSPs) to enhance investor protection and market integrity. These measures aim to mitigate the risk of loss or misuse of customer assets and facilitate asset recovery in the event of a DPT service provider’s insolvency.
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###### Background
In October 2022, MAS launched a high-level consultation on „Proposed Regulatory Measures for Digital Payment Token Services“ (high level meaning that MAS proposed high level principles and requirements, but NO SPECIFIC RULE AMENDMENTS). Specifically, MAS sought feedback on several measures that it would like to take to ensure that customers are aware of the risks relating to cryptoassets and make informed decisions about cryptoasset and cryptocurrency investments. Concurrently, MAS sought to strengthen the rules for DPTSPs to ensure proper conduct and market integrity by intermediaries and platforms (please see EventID 18129 in this context for more information on the consultation).
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Having reviewed the feedback from the consultation – which is outlined in a corresponding consultation response paper (P008 – 2022 Response Paper) and which was overwhelmingly positive – MAS has now launched two follow-up consultations:
(1) In the first consultation on proposed amendments to the Payment Services Regulations 2019, MAS seeks feedback on concrete rule amendments to implement the new custody and safeguarding requirements for DPTSPs that were previously consulted on „high level“. Specifically, under the new requirements, DPTSPs will be mandated to safekeep customer assets under a statutory trust before the end of the year. This means that customer assets must be segregated from the service provider’s own assets and held in trust. The service providers will also need to safeguard customers‘ funds, conduct daily reconciliation of customer assets, and maintain proper books and records. Furthermore, the custody function must be operationally independent from other business units, and clear disclosures on the risks associated with asset custody by the service provider must be provided to customers. Also, MAS will also restrict DPTSPs from facilitating lending and staking of DPT tokens by their retail customers. These activities will still be allowed for institutional and accredited investors.
(2) In the second consultation on proposed measures on market integrity in Digital Payment Token Services, MAS seeks high-level feedback on proposed requirements on DPTs, whether they be trading venues, brokers, advisers, etc., as regard general operating and conduct requirements. The measures would thereby range from the implementation of fair and orderly operations requirements, to requirements as to the fair, prompt, and orderly handling of customer orders, to the imposition of penalties for misconduct, to explicit prohibitions, e.g. with respect to insider trading.
MAS will also publish guidelines to ensure consistent implementation of the requirements by the industry. As regards the second consultation, MAS notes that – following the close of the consultation and the review of the responses – it will propose precise regulatory measures in further upcoming consultations.