Late last week, the Monetary Authority of Singapore (MAS) revealed the long-awaited second phase of their final responses on consumer measures for digital payment token (DPT) service providers, in response to the original consultation paper in October 2022. DPT firms should familiarise themselves with the new measures and start taking steps to comply, as the timeline for compliance next year will creep up quickly. 

The first phase of the MAS responses was published in July 2023.  Since then, the shock events of 2022 including FTX, has caused regulators globally to move swiftly to effect robust regulatory measures for the crypto industry (e.g. the UK with its financial promotion regime in Oct 2023, MiCAR in Europe in June 2023, and Hong Kong's virtual asset regime in June 2023, etc.). IOSCO has also released its final report on Policy Recommendations for Crypto and Digital Assets Markets on 16 November this year.

Key points of the Singapore proposals include:

1. Scope of consumer access measures - they apply to all retail customers regardless of where they are based, being one who is not an “accredited investor” or “institutional investor”. Accredited investors will need to opt-in to be treated as such.
    
2. Treatment of DPT holdings in determining AI eligibility - DPT may be included in determining if a customer is an AI, but its value must be the lower of: 
   (a) a minimum haircut of 50% of the value; or 
   (b) a cap of SGD 200k. 
   This haircut is large, although deemed reasonable by the MAS given the significant volatility and lack of economic fundamentals of DPTs.

3.  Consumer access measures - Various measures would apply, including: 

• Need to conduct customer risk awareness assessments with a diverse question bank. The industry is asked to work together on a common template; 
• Ban on incentives to retail customers or a person to refer DPT services to retail customers. This is quite wide and may include rebates or lower trading fees, or “new joiner” benefits. 
• Restriction on debt-financing or leveraged DPT transactions to retail customers; 
• Restriction on accepting credit/charge card payments except foreign-issued ones. 

4. Other business conduct and technology risk management measures - Similarly, various measures would apply, including:

• Need to publish DPT listing and governance policies. MAS will not prescribed common listing criteria or whitelist tokens;
• Implementing policies/procedures to handle customer complaints and resolve disputes with retail customers, including voluntarily subscribing to FiDREC if desired; 
• Complying with certain technology risk management measures such as ensuring a high level of availability and recoverability of critical IT systems, and reporting IT incidents within 1 hour.

5. Addressing conflicts of interests – DPT firms are to identify and mitigate conflicts of interests (COI), which may vary depending on the trading model. For example:

• Where a DPT firm operates a market and serves as a broker/agent, it should set up separate legal entities with separate management functions and provide clear client disclosures. However, where it operates a market and deals as principal, the DPT firm or its related entity cannot trade on a market which the DPT firm operates.  
• Where a DPT acts as a broker/agent or as principal, it is required to implement proper segregation and effective Chinese walls, and provide clear client disclosures.

As for timing, the MAS plans to publish guidelines to effect the abovementioned proposals in mid-2024. A transition period of approximately 9 months will be provided for these measures to take effect.

Overall, these upcoming consumer access and other regulatory measures are unsurprising and a step in the right direction – they aim at protecting consumers from potential risks associated with DPT services such as unfair trading practices, while ensuring appropriate security standards are met at all times. The MAS has taken a clear stance to protect retail consumers, despite industry pushback in some instances.