by Bryan Tan, Partner at Reed Smith
In January 2022, the Monetary Authority of Singapore (MAS) introduced guidelines that effectively banned any online and physical crypto advertisements targeting the general public.
While such restrictions were not unheard of (take Spain, for example) local crypto players were taken by surprise by the swift implementation of the ban, and some even pushed for alternative solutions ranging from increasing consumer education to reducing restrictions for accredited investors.
However, a year on, a wave of crypto crashes and the onset of the crypto winter last May have undoubtedly justified the MAS in its stance against cryptocurrency speculative activity – with the number of investors affected by last year’s implosion likely to be far higher without the introduction of the advertising restrictions.
A year of controversies has also spurred on a fresh pulse of regulatory developments across the globe, with the UK Government currently considering its own regulatory framework for 2023. As such, the burning questions we are now left with is not whether these restrictions were necessary, but whether they were enough and what lessons can we take from Singapore’s regulatory regime?
Differences in approach
First, we should address the differences between the UK and Singapore’s regulatory approaches. The UK plans to adopt a broad-based approach, with the Financial Conduct Authority (FCA) regulating many crypto advertisements indirectly by regulating the firms who approve financial advertisements (approvers).
For example, at the end of last year the FCA provided approvers with assessment criteria, reporting requirements, timelines for notifying the FCA of decisions, and the expectation to integrate new Consumer Duty rules in the coming year. On the flip side, to date, Singapore’s crypto advertising ban has been distinct from advertising regulations for the financial industry.
Singaporean regulation 2.0
Singapore is now attempting to align crypto regulations with financial industry regulations, and in November of last year the MAS proposed further measures to regulate cryptocurrency. These included requirements for crypto providers to provide risk disclosures to retail investors, banning the use of credit facilities and leverage by retail customers for crypto trading, and a proposed capping of the value of crypto holdings used to determine accredited investor status (which subjects investors to less investment restrictions than retail investors).
Additional measures to address conflicts of interest and introduce cyber risk mitigation were also suggested, akin to those currently imposed on financial institutions
Given the second wave of crypto-default events of last December, it would seem that the MAS has once again been vindicated in its hard stance on crypto regulation. Attempts at self-regulation by the industry have all but fizzled out, and if anything, the question we are left wondering is whether the regulation should have been imposed quicker.
Nonetheless, Singapore’s crypto industry has voiced concerns over the proposed further regulation, noting that over-restrictive measures may drive retail investors to offshore firms that are not subject to MAS’ regulatory controls. Other industry associations also opposed certain measures, like banning customer referral programmes, while agreeing with the MAS on other proposals such as greater investor education and mitigating conflicts of interest. There is also some reluctance to impose regulations that introduce (perceived) compliance overheads due to their alignment with financial industry regulations.
While there are many approaches to regulating an ever-changing crypto industry, it appears that a mix of broad-based regulatory measures aligned with the financial industry’s controls is inevitable. More regulation is also likely this year, as regulators dissect the significant crypto events of 2022, especially if the resulting cases are fully played out in the courts and crypto players continue to make public statements, triggering similarly public responses.
In such a fast-paced industry, attempts at self-regulation need to be swift and be supported by a broad consensus. Without this, the industry will continue to build castles on the sand, rather than on solid ground.