Today, the Monetary Authority of Singapore (MAS) released a bill that requires digital payment token providers to hold customer assets in legal trust. Digital Payment Tokens is the term used in Singapore for cryptocurrencies and stablecoins. MAS requested comments within the month and wants to implement the law this year.

Simultaneously, it aims to restrict the ability of service providers to allow the lending and staking of cryptocurrency for retail clients.

The collapse of several crypto companies, particularly FTX, has highlighted the degree to which crypto companies mix their own assets with those of clients. Unfortunately, the legislation won’t necessarily prevent that from happening, but it should make it harder and more likely for a whistleblower to report them.

Most of the proposed laws today are intended to protect customers in the event of bankruptcy. However, MAS acknowledged that in the event of bankruptcy, it can take a long time to recover any remaining funds.

The new laws impose requirements that companies that handle any other type of client assets expect. Although client funds must be kept separate from company assets, commingling of client funds with other client funds is permitted. However, this has to be disclosed, as well as the risks involved.

Other requirements include ensuring that the digital asset custodial function is a separate or independent business unit. Service providers are expected to maintain proper records of client assets and perform reconciliations on a daily basis.

Digital asset dilemma: regulate or educate?

Singapore has established itself as one of the most innovative jurisdictions for digital assets. However, he is wary of the risks of cryptocurrencies for retail investors. Earlier this year, the MAS Chairman and Chief Government Minister, Tharman Shanmugaratnam, expressed reservations about regulating the sector, fearing that this could legitimize it. “Does that legitimize something that is inherently purely speculative and, in fact, a little crazy?” he said.

Meanwhile, the nation-state is advancing in other areas, such as Project Guardian, which provides a secure environment to support numerous institutions implementing regulated activities on public blockchains. It is also working with other central banks exploring cross-border currencies on public blockchains. MAS recently published a document proposing standards for programmable digital currency which it refers to as purpose-bound money.