My Suggestions for MAS’s Proposed DTSPs Framework

Singapore has persistently positioned itself as a progressive jurisdiction, balancing innovation with strong regulatory oversight. As a fellow Singaporean, I’m very happy with the longer term plans.

The Financial Authority of Singapore (MAS) is searching for submissions for the session paper on the proposed regulatory strategy for Digital Token Service Suppliers (DTSPs) beneath the Monetary Companies and Markets Act 2022.

Reasonably than reply on to the submission, I’ll try to share my place brazenly right here, providing insights, attainable plans, and timelines for implementation. Earlier than I start, I will share this in a private capability: I don’t characterize any self-proclaimed professional teams, associations, or faculties within the area of digital property.

License utility and price constructions

Within the first half of 2024, Singapore’s fintech market noticed its cryptocurrency and blockchain sectors attain US$211.90 million via 72 offers, up 22% from US$166.30 million from 38 offers within the second half of 2023.

Singapore has been actively working to strengthen threat administration frameworks for the tokenization of digital property and lately launched an initiative to develop asset tokenization inside the monetary providers trade.

MAS in the present day printed enterprise conduct and shopper entry measures for digital cost token providers in Singapore to restrict potential hurt to shoppers. These shall be carried out via laws and tips, which can come into impact in phases from mid-2024. https://t.co/laevvAlW0a pic.twitter.com/kxBLRQG0az

— MAS (@MAS_sg) November 23, 2023

The proposed license utility processes and price constructions are essential parts that can form the DTSP panorama in Singapore. From my perspective, MAS ought to think about implementing a tiered strategy to each timelines and reimbursements, which displays the variety of DTSPs by way of measurement, complexity and threat profile.

For timelines, I suggest a three-tier system:

Quick (60 days): For small DTSPs with low threat and easy enterprise fashions.

Commonplace (90 days): For medium-sized DTSPs or DTSPs with reasonably complicated operations.

Prolonged (120+ days): For big, complicated DTSPs or for corporations proposing new enterprise fashions.

This layered strategy would enable MAS to allocate sources effectively whereas guaranteeing thorough management of extra complicated purposes. The price constructions can observe the same tiered system primarily based on the DTSP’s annual income, or transaction quantity could be carried out.

Singapore expands laws for digital cost token suppliers https://t.co/xbJBsBSjHz

— The Register (@TheRegister) April 3, 2024

Minimal monetary necessities

The proposed minimal monetary necessities present a vital safeguard in opposition to potential market disruptions and shopper losses. Based mostly on my evaluation, I consider {that a} risk-based strategy to setting these necessities is extra possible. This will embody the next:

Fundamental capital requirement: A minimal base capital for all DTSPs, no matter measurement or providers provided.

Threat-weighted capital requirement: further capital necessities primarily based on the forms of providers provided by the DTSP, transaction volumes and threat profile.

Liquidity requirement: A minimal liquidity ratio to make sure that DTSPs can meet short-term obligations.

📣 #ESMA seeks enter on liquidity administration instruments for funds beneath the revised AIFMD and the #UCITS Directive.

🗓️ Ship your enter earlier than October 8 https://t.co/LxNEEX7i2O pic.twitter.com/6G2K4CVVim

— ESMA – EU Securities Markets Supervisor 🇪🇺 (@ESMAComms) July 8, 2024

Particularly, suppliers with a capital ratio above 15% have been 30% much less more likely to expertise operational disruptions in periods of utmost market stress. I suggest that MAS think about setting the bottom capital requirement at SGD250,000, with further risk-weighted necessities that would improve this quantity to SGD5 million for the biggest and most complicated DTSPs.

Audit Necessities

The proposed roles of CEOs, administrators and companions, along with audit necessities, are elementary to making sure good governance and accountability within the DTSP sector. The next enchancment is really useful for consideration:

Necessary coaching: Annual coaching applications for CEOs and administrators on regulatory compliance, threat administration and rising developments in digital property.

Threat committee: DTSPs above a sure measurement should set up a devoted threat committee at board degree.

Impartial Administrators: Mandate a minimal variety of impartial administrators primarily based on the dimensions and complexity of the DTSP.

Audit frequency: Annual exterior audits for all DTSPs, with further quarterly inside audits for bigger suppliers.

The monetary markets are shifting in the direction of tokenization of property, revolutionizing asset administration and investments. #Chainlink emphasizes interoperability and knowledge integration, echoing #TokenFi’s imaginative and prescient of a future the place tokenized property reshape the monetary world.

📰👇 https://t.co/87Qp3ufa3X pic.twitter.com/BGSfD8E2ss

— TokenFi (@tokenfi) April 26, 2024

Regulators are more and more turning to know-how options to boost their regulatory capabilities and handle massive quantities of knowledge. In consequence, corporations want to interact with regulators extra usually about fintech and regtech developments.

Fintech corporations that implement strong governance constructions and conduct common audits are certainly much less more likely to expertise compliance breaches.

AML/CFT measures

The measures proposed in elements 5 to eight of the session doc, particularly these associated to anti-money laundering (AML) and countering the financing of terrorism (CFT), are essential to take care of the integrity of Singapore’s monetary system. I suggest the next enhancements:

Threat-based strategy: Implement a layered KYC/AML strategy primarily based on transaction volumes and threat profiles.

Know-how integration: Encourage using AI and machine studying for transaction monitoring and suspicious exercise detection.

Regulatory Know-how (RegTech) sandbox: Arrange a sandbox setting for DTSPs to check progressive compliance options.

For present prospects signed up previous to licensing, I suggest a phased strategy:

Part 1 (0–6 months): Threat evaluation of present buyer base

Part 2 (6–12 months): Enhanced due diligence for high-risk prospects

Part 3 (12–18 months): Full compliance with new necessities for all prospects

Correspondent Account Companies

The proposed necessities for Correspondent Account Companies and data sharing for legislation enforcement functions are important elements of a complete regulatory framework. Perhaps the next will assist:

Standardized knowledge format: Develop a standardized knowledge format for data sharing throughout the trade.

Blockchain evaluation: Encourage using blockchain analytics instruments to enhance transaction traceability.

Safe data sharing platform: Set up a safe, centralized platform for sharing data between DTSPs and legislation enforcement businesses.

Blockchain analytics instruments have performed an essential position in recovering stolen or illegally acquired digital property worldwide. They permit legislation enforcement businesses to trace and determine suspicious cryptocurrency transactions on the blockchain, resulting in asset restoration efforts.

Know-how threat administration

Draft notices FSM-N28 via FSM-N33 cowl important facets of DTSP operations, together with know-how threat administration, cyber hygiene and conduct. Based mostly on my observations, I suggest the next:

Steady monitoring: Implement real-time monitoring methods for cyber threats and operational dangers.

Incident response workouts: Require common incident response workouts and simulations.

Third celebration threat administration: Set up clear tips for managing dangers related to third-party service suppliers.

Shopper training: Require DTSPs to allocate sources to ongoing shopper training initiatives.

Bitcoin Heist Hits Japanese Trade DMM Bitcoin https://t.co/RPT9Vxhsnf pic.twitter.com/HCXDznWG2o

— CySecurity Information (@EHackerNews) June 6, 2024

When it comes to opening hours, MAS could wish to think about a versatile strategy that enables for twenty-four/7 operations whereas guaranteeing sufficient threat administration and buyer help. This will embody the next:

Core working hours (e.g. 9am to 5pm SGT) with full help providers

Prolonged opening hours with automated methods and on-call help

Scheduled upkeep home windows throughout low quantity intervals

Implementation timeline:

To make sure a easy transition to the brand new regulatory framework, I suggest the next timeline:

Months 0–3: Publication of ultimate laws and tips

Months 3–6: Trade session and suggestions interval

Months 6–9: Finalization of technical specs and reporting codecs

Months 9–12: DTSP preparation and system upgrades

Months 12–18: Phased implementation of latest necessities

Months 18–24: Full compliance deadline for all DTSPs

This timeline permits for a gradual implementation, giving DTSPs enough time to adapt their methods and processes whereas guaranteeing that the regulatory framework is absolutely operational inside two years.

With cautious implementation and continued refinement, this regulatory framework has the potential to strengthen Singapore’s place as a worldwide chief in digital asset regulation, attracting progressive corporations whereas defending the pursuits of shoppers and the broader monetary system.