Starting October Digital Asset Firms in Singapore Must Follow New Rules for Retail Consumer Safety

Singapore’s New Rules for Digital Asset Firms: What Retail Investors Need to Know

Starting from 4 October 2024, digital asset firms licensed in Singapore must adhere to new regulations aimed at protecting retail consumers.

These rules, set to be implemented in two distinct phases, are designed to enhance transparency and risk management in the rapidly evolving landscape of cryptocurrency.

The Monetary Authority of Singapore (MAS) has detailed these measures, with significant implications for how digital payment token (DPT) service providers operate.

What Are the Key Provisions of Phase One?

The first phase focuses on several critical areas, including the ring-fencing of customers' assets and mandated disclosures from crypto firms.

These measures are particularly vital in light of the volatility often seen in cryptocurrency markets.

Effective 4 October 2024, firms will be required to implement stringent risk management controls to safeguard customer assets against potential fraud or insolvency.

Stephanie Magnus, a financial services principal at law firm Baker McKenzie Wong and Leow, emphasised that when the Payment Services Act first came into effect, it primarily addressed anti-money laundering and counter-terrorism financing obligations due to the inherent risks associated with DPTs.

In the face of increasing regulatory scrutiny, the updated guidelines aim to ensure that consumers are adequately protected.

Magnus stated,

“The updated guidelines ensure that consumers are duly protected and that there is a need for crypto and DPT businesses to level up consumer safeguards and controls.”

Why Is There a Need for a Risk Awareness Assessment?

The second phase of the regulations will come into play on 19 June 2025, introducing additional requirements focused on assessing retail investors’ risk awareness.

DPT service providers will be mandated to evaluate the understanding of their retail customers regarding the risks associated with cryptocurrency investments.

This assessment is crucial, as it helps to determine whether individuals are adequately informed before engaging with these high-risk assets.

The law firm noted that the risk awareness assessment must be conducted for all existing retail customers prior to this deadline, ensuring that no customer is left without adequate knowledge.

“The risk assessment can be skipped only in specific circumstances,” it was noted, particularly when firms reduce the amount of cryptocurrencies held in customers' accounts as of 19 June 2025.

How Will the Regulations Impact Retail Investor Engagement?

Significantly, the upcoming rules prohibit licensed crypto firms from offering incentives to entice retail customers to register with them.

This measure aims to reduce the temptation for uninformed investors to enter the market, which could lead to significant financial losses.

Angela Ang, senior policy adviser at blockchain intelligence firm TRM Labs, expressed that the earlier safeguarding requirements are intended to protect customer assets amid potential risks:

“I think the hope here is to deter casual punters and make sure those that do invest, go in with their eyes open.”

These new regulations seek to heighten barriers to entry, thereby creating a more informed customer base better equipped to navigate the complexities of cryptocurrency investments.

Ang highlighted that the measures are a direct response to the vulnerabilities exposed during the 2022 bankruptcy of the American crypto exchange FTX and the collapse of Terra/Luna, stating,

“They are also in step with the global regulatory landscape, which has seen crypto regulators zero in on consumer protection in the past two years.”

What Are the Industry’s Responses to These Changes?

The reactions from industry leaders suggest that while the new regulations may pose challenges for consumer access to DPT services, they are ultimately welcomed for their intent to enhance consumer awareness and protection.

Lasanka Perera, chief executive of Independent Reserve Singapore, noted that the regulations might have been anticipated, particularly in how retail customers will engage with DPT services moving forward.

He commented,

“The current scope of the measures makes it more challenging for the average consumer to access, gain familiarity and get first-hand experience with DPTs.”

However, many industry players appreciate the emphasis on fostering a more knowledgeable customer base, which is vital when dealing with high-risk assets like DPTs.

The updates follow MAS’ revised guidelines on consumer protection for crypto players, published on 19 September 2024, signalling a proactive approach to safeguarding retail investors.

The regulatory environment continues to evolve as the MAS finalises its proposed rules for DPT service providers, ensuring that the interests of consumers remain at the forefront of digital asset regulations in Singapore.