SINGAPORE (Mar 15): How do you harness the transformative benefits of blockchain technology and crypto tokens while containing some of their risks?
That is the main challenge facing regulators and central banks when it comes to crypto currencies, says Ravi Menon, Managing Director of the Monetary Authority of Singapore.
Menon was speaking at the Money20/20 Asia Conference at the Marina Bay Sands Convention Centre on Thursday.
Although MAS has so far chosen not to regulate crypto tokens directly, it is focusing on the activities associated with crypto tokens, says Menon.
These include evaluating the different kinds of risks these activities pose and considering the appropriate regulatory responses but all the while, seeking to ensure it does not stifle innovation.
According to Menon, the three key crypto currency risk areas are: Financial stability, money laundering, investor protection and market functioning.
He says central banks and regulators are studying the nexus between the crypto world and the financial system to assess how risks to financial stability may be transmitted.
Although MAS assesses that the nature and scale of crypto token activities in Singapore do not currently pose a significant risk to financial stability, Menon says "this situation could change, and so we are closely watching this space".
Given the gaps in traditional information sources, MAS is exploring some unconventional ways in which to gather data about the scale and scope of crypto token related activities.
As for the "clear and present danger" of money laundering and terrorism financing posed by some crypto token activity, Menon says intermediaries dealing in crypto tokens are already required to report any suspicious transactions to the Commercial Affairs Department.
In addition, the proposed Payment Services Bill will require intermediaries that buy, sell or exchange virtual currencies to specifically address money laundering and terrorism financing risks.
Intermediaries will also be required to carry out customer due diligence and put in place controls and processes that are commensurate with their risks.
As for safeguarding the interests of investors, the priority of MAS has been to make them aware of the risks of putting their money in crypto tokens.
"We have advised the public to act with extreme caution should they wish to invest in crypto tokens," says Menon, "They could lose their shirts if prices plunge... And they have no regulatory protection if there is fraud."
MAS is also tackling the issue of market integrity and functioning. Several cryptocurrency exchanges abroad have suffered cyber attacks and theft of their crypto tokens.
There are also rumours and reports of rampant market manipulation and other fraudulent activities on crypto-exchanges.
"We are watching with interest developments in the US, where futures contracts based on crypto tokens have been introduced on regulated exchanges. There may be some advantages here from a market integrity perspective," says Menon.