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Singapore Mulls Ban on Letting Retail Investors Buy Crypto With Leverage

26 Oct, 20223 min readRegulation
Singapore Mulls Ban on Letting Retail Investors Buy Crypto With Leverage

Singapore’s financial watchdog has proposed restrictions on the use of credit or leverage when trading cryptocurrencies.

The rules would stop any crypto firms from extending credit or leverage to retail customers and would prevent them from accepting payments via credit cards. These rules would not apply to institutional investors.

The proposals put forth by the Monetary Authority of Singapore (MAS) are part of a basket of new measures aimed at mitigating “the risks of consumer harm” and educating “consumers on the risks of cryptocurrencies and their related services.”

These measures, outlined in a consultation, also include suggestions that providers should be forced to assess that a retail customer has sufficient knowledge of the risks of crypto-related services, covering issues like illiquid market conditions, cybersecurity, and technology failure, before providing any service to that customer.

“Many retail customers may not have sufficient knowledge of the risks of trading Digital Payment Tokens (DPTs), leading them to take on higher risks than they would otherwise have been willing, or are able, to bear,” said the paper.

If consumers fail to display ”adequate knowledge” when assessed, providers may then be forced to provide educational materials to the customer to strengthen the customer’s knowledge of the risks of crypto services.

The MAS also proposed that providers “should not mortgage, charge, pledge or hypothecate the retail customer’s” crypto. Hypothecation refers to the process of using an asset as collateral in exchange for a loan.

For institutional or professional customers, service providers could be forced to “provide a clear risk disclosure document and obtain the customer’s explicit consent” before providing staking services.

The watchdog proposed a ban on offering token incentives, such as free crypto or trading credits, as these can allegedly “entice retail customers to participate in DPT services without fully considering the risks involved.“

These rules would also extend to any person, for example, an existing customer or a celebrity, referring a service provider to retail customers.

Singapore and crypto

This year has seen numerous steps by Singapore regulators to limit the risks that crypto can pose to consumers.

The MAS released guidelines at the beginning of 2022 banning crypto platforms from promoting their services to the general public, for example on buses or in TV advertisements.

However, they will still be able to advertise on their websites and social media accounts.

Despite the watchful eye of regulators, the news comes as digital assets remain a popular investment choice for wealthy investors in Singapore.

Nine in ten family offices and high-net-worth individuals in the region are either already invested in digital assets, or plan to be in the future according to a report by KPMG.

The MAS didn’t provide any guidance about when the latest proposals could be brought in, but interested parties will be able to provide feedback on these proposals until December 21.

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