There Was No Cause to Add FTX to Investor Alert List Before Collapse, Singapore's MAS Says

The Monetary Authority of Singapore told CoinDesk it was not possible to prevent Singapore users from directly accessing overseas service providers, and warned regulations don’t protect against risky speculative trades.

AccessTimeIconNov 14, 2022 at 11:47 a.m. UTC
Updated Nov 14, 2022 at 4:21 p.m. UTC

Sandali Handagama is a CoinDesk reporter with a focus on crypto regulation and policy. She does not own any crypto.

Global cryptocurrency exchange FTX’s dramatic fall through last week, ending in a bankruptcy filing in the U.S., left Twitter dense with rumors about how stakeholders worldwide – already spooked by widespread market contagion from earlier in the year – might be affected by the fresh collapse.

When Binance announced its plans to potentially purchase the embattled FTX’s non-U.S. business last Tuesday in a now-scrapped deal, retail crypto investors were confused about what was going to happen to their funds locked in FTX.com.

A number of Twitter posts alleged crypto investors in Singapore had turned to Sam Bankman-Fried’s FTX over Binance after the latter withdrew its bid to get regulatory approval in the country last year and was placed on the regulator’s Investor Alert List (IAL).

Some Twitter users pointed fingers at the Monetary Authority of Singapore (MAS), which is responsible for regulating and licensing crypto operators, for having targeted Binance and let FTX.com continue to serve customers in the country.

MAS only lists entities that may be “wrongly perceived” as being locally regulated on the IAL, as was the case for Binance.com, the MAS said in an emailed statement to CoinDesk.

“It would not be meaningful for MAS to list all unlicensed entities on the IAL. MAS did not have cause to list FTX on the same basis as Binance,” the regulator said.

Although Singapore regulators haven’t made any moves on FTX yet, the MAS had previously vowed to crack down on “bad” crypto operators in the country. The warning came after a number of big industry names with ties to Singapore – like crypto hedge fund Three Arrows Capital and exchange platform Vauld – bit the dust earlier this year.

During FTX’s quick demise, the securities regulator in the Bahamas, where the company was headquartered, moved to freeze assets tied to FTX. Japan’s Financial Services Agency also ordered FTX’s local arm to suspend all operations. On Friday, Cyprus suspended a license it approved for the exchange in September. FTX is also facing a U.S. Securities and Exchange Commission probe.

Similar actions could be expected in Singapore if there's a reason for it, Chia Hock Lai, co-chairman at Blockchain Association Singapore said in an interview with CoinDesk. Regulations in general, particularly related to securities trading, are likely to tighten, according to Chia.

The MAS has already proposed regulations that could limit inexperienced retail investors from accessing crypto markets, along with standards for issuers of crypto stablecoins that are pegged to the value of other assets like the U.S. dollar.

“I think that this will further convince the MAS that what it did is correct,” Chia said, referring to the MAS’ initiatives to further regulate the sector and curtail retail investor participation.

For now, MAS clarified that FTX.com does not operate in Singapore, and that it’s neither licensed nor exempted from licensing in the country.

“It is not possible, however, to prevent Singapore users from directly accessing overseas service providers. FTX.com was therefore able to onboard Singapore users,” the central bank said. “MAS has consistently reminded the public of the risks of dealing with unlicensed entities.”

It also clarified that Binance was not banned in Singapore.

“Binance did not have the requisite license to solicit customers from Singapore and had to cease doing so,” the statement said.

Quoine

FTX’s insolvency filing from Friday listed 134 entities tied to Sam Bankman-Fried’s crypto enterprise seeking bankruptcy protection in the U.S. Among the listed, was its Singapore subsidiary Quoine Pte. Ltd, which also operates crypto exchange Liquid (another entity listed in the filing).

Responding to questions raised about why FTX.com’s Singapore users have not migrated to its subsidiary in Singapore, MAS said that FTX.com and Quoine operate as separate legal entities.

“Quoine is currently exempt from licensing while its license application is under review. MAS is carefully reviewing the application, taking into account recent developments,” MAS said, adding that it has not required FTX.com to migrate Singapore users to Quoine.

Retail investors

MAS issued a consultation paper on Oct. 26 proposing regulatory measures to restrict retail investors’ participation in crypto markets to reduce risk exposure. The proposed rules include crypto service providers to set up a test designed to gauge retail traders’ experience.

Singapore doesn’t have a large retail market for crypto, but the introduced measures are “very comprehensive” and verge on overregulation, according to Chia.

“Because, for example, if investors already go through the risk assessment test, there's no need to curtail them from using credit cards to make payments or to ban service providers from providing incentives,” Chia said.

Consumers must continue to exercise utmost caution when trading in cryptocurrency, the MAS told CoinDesk.

“Digital payment token service providers licensed by MAS under the Payment Services Act are regulated for money laundering and terrorism financing risks as well as technology risks, but not safety and soundness,” MAS said.

This means operators are not subject to risk-based capital or liquidity requirements, and they are not required to safeguard customer funds or digital tokens from insolvency risk, the regulator explained.

“Regulations cannot protect consumers from losses arising from the inherently speculative and highly risky nature of cryptocurrency trading,” the MAS said.

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Sandali Handagama is a CoinDesk reporter with a focus on crypto regulation and policy. She does not own any crypto.

CoinDesk - Unknown

Sandali Handagama is a CoinDesk reporter with a focus on crypto regulation and policy. She does not own any crypto.