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DPT service providers face higher costs under MAS’ investor protection measures

MAS has required all providers to hold customers’ money and assets in a trust.

Over the past year, a number of high-profile digital payment token (DPT) service providers, among them FTX and Genesis, collapsed. Their failure left thousands of investors in limbo.Taking action, the Monetary Authority of Singapore (MAS) has mandated providers to put their customers’ money and assets in a trust.

Since the new measures imposed by MAS “have moved closer to capital service market requirements,” Wai Ming Yap, partner at Morgan Lewis, said DPT service providers will likely incur greater compliance costs.

“DPT service providers will need to adapt to the new requirements quickly and may have to restructure parts of their business processes and operations in order to comply,” added Yap.

Samuel Lim, partner at Rajah and Tann’s Financial Institutions Group, shared a similar sentiment, adding that the new requirements could lead to increased compliance costs for the DPT service providers.

However, Lim noted that the new requirements will benefit the industry as a whole as DPT service providers in Singapore will have “increased credibility” from being supervised under a regulatory framework for customer protection.

According to Yap, the MAS mandate offers “greater investor protection” to retail customers.

“These measures mitigate the risk of loss of money and assets not only in the ordinary course of business and also in the event of a DPT service provider’s insolvency,” he said.

“Customers will also benefit from the enhanced disclosure requirements which will offer greater transparency and risk disclosures to customers and allow them to make informed investment and trading decisions,” he added.

Overall, the mandate will benefit the entire cryptocurrency industry, with Wai believing it would stabilise the market and eventually “improve the quality of Singapore’s digital asset space.”

Yap also believes that the regulatory measures will translate into “greater trust and confidence” in the DPT market, which will in turn, allay investor concerns and lead to increased demand from customers.


When the measure comes into force in October 2023, all DPT service providers will be required to segregate their customers’ monies and assets into a trust. Previously, safeguarding obligations only applied to major payment institutions.

“Customers’ monies held by DPT service providers will now need to be safeguarded with financial institutions in Singapore. Under the proposed new regulations, a safeguarding institution refers to the person that the custody account is maintained with, and safeguarding institution is defined as including a bank or any other financial institution in Singapore,” Yap explained.

“MAS has stated that, for the time being, it will not mandate the use of independent custodians for customers’ assets as there are only a limited number of independent third-party custodians in Singapore currently. A licensed DPT service provider is permitted to maintain the custody account itself, provided it ensures operational independence of its custody function from other business units,” Yap added.

Under the measure providers are required to maintain “a separate custody function that is operationally independent from other business units to mitigate the risk of internal fraud and misappropriation of customer assets.”

“Where an external service provider is engaged to support the custody of customers’ assets, DPT service providers should disclose the safeguarding arrangements, terms and conditions and attendance risks to its customers, and ensure that the external service provider has controls in place to reduce the risk of loss of assets due to fraud or negligence,” Yap added.

To further safeguard the assets of customers, movement of these assets must be controlled by the provider’s senior managers and personnel who reside in Singapore.

“These senior managers and personnel should be authorised to facilitate the return of customers’ assets where required by MAS or in court proceedings,” added Yap.

In terms of storage, Yap said the measure provides that at least 90% of customers’ DPTs must be kept in cold wallets, whilst allowing up to 10% to be kept in other wallets like hot wallets.

“[Providers should] conduct periodic reviews to consider if this percentage should be increased,” Yap added.

Apart from the segregation, MAS is also requiring DPT providers to perform daily reconciliation of their customers’ assets, including monies, at the entity level.

“They are also required to keep transaction records and maintain separate books and records for each customer with details of the customers’ assets at all times,” Yap said.

The regulatory requirements imposed by MAS also covers DPT service providers operating outside of Singapore but providing regulated payment services, including DPT services, to persons in Singapore.

On the other hand, “DPT service providers operating outside of Singapore that do not target Singapore customers, and only provide services to Singapore customers who solely of their own volition and initiative seek out their services” would not be subject to the proposed new requirements, said Lim. 

“Customers in Singapore should exercise caution and due diligence to understand the risks before using such DPT service providers,” he added.


Wai said the new measures from MAS are “consistent” with the agency’s approach towards cryptocurrency regulation.”

“MAS has been signalling repeatedly in recent years, and warning the public, that DPT trading is highly risky and speculative and that it will be introducing additional safeguards to protect consumers. These latest investor protection measures continue in the same vein with the primary aim of mitigating consumer harm,” added Yap.

Lim, for his part, said: “MAS has always been extremely concerned with the risks of cryptocurrency investments for the retail public, issuing numerous public warnings and consumer advisories including in conjunction with the Singapore Police Force. Having already addressed the AML/CFT risks of DPT services with the initial iteration of the Payment Services Act 2019, as MAS subsequently observed that public interest in cryptocurrencies remained unabated, MAS moved to prohibit DPT service licensees from advertising to the public in Singapore.”

“The suite of newly proposed regulatory measures which MAS has consulted the public on will further safeguard customers for DPT services in areas including regulating retail customer access, segregation and custody of customer moneys and assets, technology risk management and preventing market misconduct. MAS has stated that they will be looking to progressively implement these measures from the end of 2023 onwards” Lim added.

Yap underscored that by implementing baseline business conduct practices across the cryptocurrency industry in key areas of concern ensures that customers are treated fairly and properly and minimises the risks faced by consumers in Singapore from trading in DPTs.

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