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Ahead of new laws, Singapore's MAS investigates cryptocurrency firms

27 Aug 2022 By: Anirudh Trivedi
Ahead of new laws, S

According to reports, the MAS questioned cryptocurrency companies 

About their owned tokens, top lending and borrowing counterparties, loans, and top tokens staked via DeFi.

 In order to prepare for new cryptocurrency rules that address the ongoing liquidity crisis and withdrawal concerns, the Monetary Authority of Singapore (MAS) has begun to take action. According to report on Friday, certain applicants and licence holders for the MAS' Digital Payment Token have received lengthy questionnaires from Singapore's central bank.

The questionnaires, which were distributed over the past month, purportedly sought "very granular information" regarding the operations and assets of the inspected crypto businesses. The focus of the inspections was on the financial health and connectivity of the companies, and the top tokens owned, top lending and borrowing counterparties, quantity lent, and top tokens staked via decentralised finance protocols were among of the topics covered.

The report states that companies were expected to respond quickly and cites persons with knowledge of the situation. The MAS has so far granted 10 licences to cryptocurrency businesses in Singapore, including exchanges and brokerage division of DBS Bank called DBS Vickers. Out of the almost 200 known firms that have sought for the licence, that is a very small portion.

The most recent regulatory measure in Singapore appears to be intended to increase oversight of cryptocurrency companies in light of impending new laws for the sector. The financial watchdog is developing a regulatory framework to cover "consumer protection, market behaviour, and reserve backing for stablecoins" in the upcoming few months, according to MAS managing director Ravi Menon's announcement in mid-July.

The MAS particularly referred to gaps in Singapore's current crypto legislation, saying that companies that provide services for digital payment tokens are not subject to risk-based capital or liquidity requirements. Additionally, they are not currently required to protect client funds or digital tokens from bankruptcy risks. Instead, legislation primarily focuses on technological hazards, money laundering, and terrorism financing threats.

The impending implementation of a new regulatory framework for cryptocurrencies in Singapore is a reaction to the continuing liquidity crisis and the related withdrawal problems during a bear market. After failing to make margin calls in mid-June, Three Arrows Capital (3AC), a distressed Singaporean cryptocurrency hedge firm, filed for bankruptcy during this crypto winter.

Su Zhu, a co-founder of 3AC, stated in an affidavit in the middle of August that the business changed its registration from Singapore to the British Virgin Islands in September 2021. He allegedly charged the liquidators with deceiving authorities over the organisational structure of 3AC.