Investing in crypto is not for the faint of heart. We often hear that investing in digital assets is risky, and it is recommended that you only put in what you can afford to lose. A lot of crypto enthusiasts are aware of this and have prepared for the worst. But what if crypto companies like exchanges participate in unscrupulous acts to the detriment of consumers? This act will never be accepted by anybody, inside and outside the crypto space. To avoid such deceitful practices from ever taking place, two Southeast Asian Countries, Singapore and Thailand, have passed regulatory measures to protect consumers.
Provisions of Singapore’s Crypto Law
The Lion City’s new crypto regulation requires crypto exchanges to set up a trust account with a licensed custodian. This would protect customer assets in case of insolvency and fraud. It also prevents comingling of funds, which could result in the exchanges using customer assets to perform transactions that could put investor assets at risk. This is one of the lessons learned from the FTX collapse. Customer assets were allegedly used for unauthorized purposes, such as margin trading and lending. Moving investors’ funds to a trust account will prevent the crypto service provider from using customers’ assets without any consent.
This business model is now being adopted by other exchanges like EDX Markets, a new crypto platform in the US. It is a response to the US Securities and Exchange Commission’s (SEC) call for exchanges to separate the roles of being an exchange, custodian, and broker.
Another Singaporean provision is to restrict retail investors from participating in lending and staking, citing that such activities are “not suitable for the retail public.” Lending and staking involve the service provider taking custody of customers’ digital assets and, as such, can be susceptible to risk. The platform may not be able to repay in case of insolvency fraud or any other issue.
Thailand is also Restricting Crypto Lending and Staking
Thailand is the second country in the Southeast Asian region to restrict crypto exchanges from offering lending and staking services. The new law also requires exchanges to inform customers about the associated risks involved with crypto trading.
Restricting lending and staking has been sought after a surge in interest in such activities. The Thai SEC has expressed concerns that the lack of clear regulations could expose investors to significant risk.
Consumer Protection is Key to Adoption
Requiring a third-party custodian for digital assets is one way of protecting customers. This prevents an exchange from using its customers’ assets to engage in risky, high-leverage trades or transactions. Being excluded from staking programs might sound too much, but it prevents another Gemini-Genesis issue, wherein customers are unable to withdraw funds.
Having clear guidelines, even though they are too strict, is also better than none at all. This saves crypto companies and customers from guessing what is the right step to take. Regulatory ambiguity does not benefit anybody. Maybe US regulators can ask their Asian counterparts for some advice.
Sources: Finance Feeds, mas.gov.sg
Featured image from Pixabay
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