MAS releases consultation paper on proposed approach to Derivatives Contracts on Payment Tokens
The Monetary Authority of Singapore (MAS) has published a consultation paper outlining its proposed regulatory approach under the Securities and Futures Act for derivatives contracts that reference payment tokens (e.g. Bitcoin) as underlying assets.
The consultation paper addresses the paper issued by the MAS in Q4 2019, with the MAS reporting that the majority of respondents reacting positively to the approach outlined by the regulator in regard to the proposal of an Approved Exchange (AE) to regulate Payment Token Derivatives (PTD), preferred over other entities (non-AE Payment Token Derivatives).
Reportedly, some respondents felt that, despite there being the opinion that PTDs don’t need to be regulated, the MAS should expands its regulatory ambit to include non-AE Payment Token Derivatives, in turn imposing less stringent requirements on non-AE Payment Token Derivatives compared to those on AEs.
The MAS agreed, stating that ‘Payment Token Derivatives as a general asset class are not yet suitable to be regulated,’ due to their high volatility and challenging valuation, with the same applying to PTDs.
The MAS, having also reiterated that the complex PTDs aren’t inherently suitable for retail investors, has said it will continue to regulate PTDs offered on AEs. The regulator has said, however, it will not regulate those PTDs which are not listed on AEs.
When one suggested that the MAS recognise PTDs listed on foreign exchanges, the MAS clarified that it would not be responsible for regulating PTD listings on overseas exchanges, although it would not contest their listing on foreign listings.
The regulator also clarified that it doesn’t directly regulate the custody of token payments under the Securities and Futures Act. However, for those PTDs listed on AEs, the MAS has said it will hold the corresponding AE responsible for appointing a custodian, and enforcing appropriate regulatory activity, clarifying on questions raised by respondents pertaining to custodising the underlying payment tokens.
Regarding the MAS’ measures for retail investors, the report reveals that the response was broadly positive.
Some reportedly felt concerned for additional measures proposed by the MAS, such as advertising restrictions or “the imposition of 1.5x minimum margin requirement for retail investors”, stating that they felt it may cause investors to look to “unregulated entities.” Furthermore, some also felt that Securities and Futures-license holders should be allowed to “determine their own margin rates for non-retail investors.”
The MAS, in response, replied that it has “MAS has introduced additional measures for retail investors who trade Payment Token Derivatives with FIs regulated under the SFA,” reiterating that it does not feel that PTDs are a suitable product for the vast majority of retail investors.
MAS has also stated formally that it does not advise retail investors to approach unregulated entities, as doing so means they will forego the safeguards put in place by the regulator.
The regulator has also said that it plans to improve consumer knowledge through education efforts to raise awareness of the risk of trading PTD products, and approaching and dealing with unregulated entities.
Please CLICK HERE to read the full report.
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