The Financial Authority of Singapore (MAS) has introduced revisions to the Cost Providers Act (PS Act) and associated rules, marking a major growth within the regulation of fee companies inside the nation.

The amendments, that are set to be applied in phases ranging from 4 April 2024, purpose to embody a broader vary of fee companies below MAS oversight and introduce new person safety and monetary stability necessities for suppliers of digital fee tokens (DPTs).

Beneath the revised PS Act, the regulation will now prolong to incorporate custodial companies for DPTs, facilitation of DPT transactions between accounts, facilitation of DPT exchanges, and the facilitation of cross-border cash transfers, no matter whether or not the transactions contain bodily possession of cash or DPTs inside Singapore.

The amendments empower MAS to implement rules addressing anti-money laundering, countering the financing of terrorism, person safety, and making certain monetary stability within the quickly rising digital fee sector.

Right here’s are 4 key takeaways from the rules:

1. Distinction between retail and accredited buyers

Supply: Freepik

Retail clients are routinely labeled as such except they actively choose into being thought-about as accredited buyers by satisfying particular monetary thresholds.

To qualify as an accredited investor, a person should reveal appreciable monetary robustness, evidenced by proudly owning greater than S$2 million in web private property—with the valuation of a major residence capped at S$1 million—or possessing over S$1 million in web monetary property, or incomes an annual revenue exceeding S$300,000.

DPT service suppliers should make use of a prudent valuation methodology that entails a compulsory utility of at the very least a 50% haircut to the market worth of the digital fee tokens and capping the valuation of those holdings on the lesser of the post-haircut worth or S$200,000.

Moreover, MAS’s tips allow DPT service suppliers the discretion to implement a valuation cap decrease than S$200,000, providing them the pliability to undertake much more conservative measures in figuring out a person’s standing as an accredited investor.

2. Segregation of consumers’ property

DPT service suppliers are given the pliability to both keep custody of consumers’ property themselves or to entrust one other occasion with this duty.

This association is designed to successfully segregate clients’ property from these of the service supplier, thereby enhancing controls in opposition to potential conflicts of curiosity and making certain the integrity of consumers’ property.

MAS doesn’t particularly require that the belief account for safeguarding clients’ property be maintained with an exterior occasion. Nonetheless, DPT service suppliers could go for such an association as a strategic measure to segregate clients’ property from their very own.

It’s essential that DPT service suppliers periodically evaluate their safeguarding preparations. This contains assessing the independence of the safeguarding individual, if one is used, to make sure that the association continues to serve the perfect curiosity of defending clients’ property.

No matter whether or not the belief account is self-maintained or held by one other occasion, DPT service suppliers should adhere to the identical regulatory expectations and tips.

For instance, DPT service suppliers are anticipated to utilise distinct blockchain addresses for storing clients’ property individually from their very own property.

3. Operational and Danger Administration Controls

Supply: Freepik

Digital fee token service suppliers should implement complete threat administration techniques and controls, below the steering of senior managers possessing the mandatory experience and expertise.

The management techniques should, at a minimal, forestall any particular person from unilaterally authorising or executing the motion, switch, or withdrawal of consumers’ property.

Moreover, they need to regulate the motion or switch of those property throughout the supplier’s storage techniques and units and stop unauthorised entry or lack of digital fee token devices associated to the purchasers’ property.

Service suppliers should set up controls for the safe storage and transmission of consumers’ property. As an example, if the digital fee token devices granting entry to clients’ property are saved on a bodily system, comparable to a computing system, entry to this system have to be strictly managed.

In situations the place multi-party computation is utilised for asset storage and transmission, key shares have to be distributed amongst a number of events to make sure that no single occasion can authorize asset actions independently.

Service suppliers are obliged to reveal their coverage on storage preparations for patrons’ property, together with the circumstances below which property are saved outdoors of chilly wallets, the concerns for such choices, and the measures applied to mitigate the chance of asset loss attributable to cyber assaults.

4. Extra Concerns for Retail Clients’ Property

DPT service suppliers are prohibited from attractive or finishing up transactions on behalf of a retail buyer that may enable the client to mortgage, cost, pledge, or hypothecate any of their property.

Furthermore, these tips forbid the lending or association to lend any property belonging to the retail buyer, in addition to any staking or preparations to stake such property.

Earlier than executing any transaction that would contain the property of a buyer who just isn’t labeled as retail, digital fee token service suppliers should present clear, written disclosures outlining the dangers related to the transaction.

Shifting ahead: What DPT service suppliers have to know

In gentle of those modifications, entities at present working below the expanded scope of the PS Act are required to tell MAS inside 30 days and submit a license utility inside six months from the graduation date.

These functions should embrace an attestation report on enterprise actions and compliance with anti-money laundering and counter-terrorism financing, verified by a professional exterior auditor, to be submitted inside 9 months.

Entities failing to fulfill these new necessities might want to discontinue their actions as soon as the amendments are enforced.

Moreover, the revised Cost Providers Laws pertaining to the safeguarding of buyer property by DPT service suppliers will develop into efficient six months following the implementation date.

These rules mandate the segregation of buyer property into belief accounts, sustaining correct information, and implementing sturdy techniques and controls to safe the integrity and security of buyer property.

The MAS has additionally launched tips and documentation to help entities in navigating the modifications and making certain compliance with the brand new regulatory framework.