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Regulators Can Look to Singapore as Role Model for Crypto Regulation

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By Don Guo, CEO of Broctagon.

Asia has played a strong role as an emergent leader in the global crypto space, as countries like South Korea, China and Japan were all early adopters of blockchain technology. Singapore, the island-state in Southeast Asia, is well-known for its substantial growth in the fintech space and its crypto-friendly attitude and framework. The Singapore Fintech Report 2021 indicated that fintech investment in Singapore reached US$346 million in 2020, representing 6.2% of all that was raised in Asia.

Owing to the country’s friendly regulatory environment with respect to financial markets, and fintech and blockchain within it, various other global cryptocurrency groups are expanding their presence in Singapore. State-backed investment company Temasek has spent hundreds of millions of dollars investing in the sector. It was also the first Asian entity to partner with the Libra Association. The Monetary Authority of Singapore (MAS), the country’s main financial regulatory body, has made it easier for foreign crypto groups to set up and service residents, albeit with restrictions including limits on transactions.

What works for Singapore is that it is clear of how it engages with cryptocurrency and the digital assets markets.

Take the world’s biggest crypto exchange Binance, for instance. Binance has recently been put in a spot – Watch Dogs around the world have clamped down on the exchange, including a warning issued by the UK’s financial regulators – a move which was touted as the country’s Financial Conduct Authority (FCA) sending a strong signal highlighting its worries about the dangers of investing in cryptocurrencies in general. Perhaps echoing their concerns, Singapore has also issued an Investor Alert for Binance, warning consumers in Singapore that Binance is not regulated nor licensed in the country to provide any payment services.

As it continues to stress the importance of due diligence, Singapore has made significant strides in establishing regulatory standards for the cryptocurrency industry. The nation is looking to grant licences to digital payments services providers in a momentous move for cryptocurrencies, and one that cements the country’s position as a leading crypto-financial hub.

And that’s just the tip of the iceberg. Singapore’s progressive policy means that the opportunities for those in the crypto industry are immense. While some crypto startups are continuing to secure funding, the mainstream financial institutions in the country are taking slow but measured steps into crypto.

Case in point, Singapore’s largest bank, DBS, expects to double the number of members on its new platform for cryptocurrency trading to 1,000 by end-December and grow this by 20-30% annually for the next three years as digital tokens gain acceptance. The bank is already seeing a robust demand from corporate investors, accredited individuals, and investment firms that manage assets of wealthy families.

Regardless of their geopolitical location, what we see is that regulators typically refer to existing compliance structures to formulate a regulatory framework for crypto. While they can differ in scope and degree, these proposed regulations observe common financial requirements such as Know Your Customer (KYC) and Anti-Money Laundering (AML). In this sense, crypto is gearing towards greater standardisation and an eventual common blueprint on which all exchanges/brokers shall operate, be it technically or operationally which is a sign of its maturity.

While it’s true that regulatory policies typically impact market sentiment in the short run, these external factors, government regulations, bans, and investor trust issues are expected to sort out in the long run. It goes without saying that there is quite a lot of work that has to be done by regulators to ensure that the crypto markets are stable while this happens. With the trust of investors post-regulation, it’s almost a certainty that we will get there.

The problem of liquidity

While it is a wider industry problem, the lack of liquidity in the cryptocurrency markets is the biggest issue that the newer crypto exchanges in Asia and globally struggle with. With high costs associated with acquiring such liquidity, many crypto exchanges find trouble balancing the benefits brought from market-makers with the latter’s opaque pricing structures.

These exchanges also struggle directly with growing pains – these involve having a small number of users, low trade volumes, drastic price disparity, and huge settlement costs for users. The reality is that building an order book that can rival top exchanges requires heavy capital and resources. That is why Singapore-headquartered Broctagon Fintech Group launched the WorldBook, an industry-led inter-exchange liquidity network for digital assets, that allows all connected exchanges to tap into a global unified orderbook. Drawing inspiration from the established infrastructure of inter-bank liquidity, the WorldBook initiative primes the maturity of crypto as an asset class.

Given its robust regulatory background, the traditional financial industry is a prime example of how crypto can implement similar standards in its markets. What the crypto market is going through now, especially the liquidity problem, is something the forex markets have already tackled and mastered. Crypto has the benefit of seeing how traditional finance has played out. The implementation of change and its results in the crypto space will be much faster compared to what it took FX, due to prior experience and improvements in technology.

As the leading fintech hub in Asia, Singapore is well positioned to lead the world in solving these issues, increasing investor confidence and driving greater public adoption of cryptocurrencies. With progressive policies outlining the country’s financial and monetary framework, it’s very likely that the island nation’s astute balance of regulation and freedom will set the pace for crypto-regulation in time to come.

Don Guo is the Co-Founder and CEO of Broctagon Fintech Group, a fintech solutions provider specializing in multi-asset liquidity, brokerage technology, and blockchain development.

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