Nature of Digital Payment Tokens (DPTs)

Are crypto derivatives regulated in Singapore?

Yes. MAS plans to regulate crypto derivative products offered to institutional investors, which will be listed and traded on approved exchanges and will be subject to the regulatory requirements and supervisory oversight under the Securities and Futures Act (SFA). Additional regulations may also apply under the PSA, including compliance with AML/CFT regulations.

Crypto derivatives are derivatives contracts, such as futures, options, or contracts for differences (CFD), that reference cryptocurrencies as the underlying asset. In 2020, MAS announced plans to regulate crypto derivatives on approved exchanges under the SFA. However, MAS indicated that it does not plan to regulate all crypto derivatives because it does not want to legitimize all such assets, particularly with regard to retail investors. Instead, MAS will only regulate and authorize crypto derivatives on approved exchanges to be offered to institutional investors.

In lieu of regulations on crypto derivatives offered to retail investors, MAS will continue to warn retail investors of the inherent risks and speculative nature of crypto derivatives that remain unregulated, apart from any digital payment regulations and AML/CFT rules under the Payment Services Act (PSA).

Under this system, according to MAS, “retail investors forgo the regulatory safeguards under the SFA when they trade with unregulated entities and do so at their own risk.” MAS will instead increase its consumer education efforts, such as “Money SENSE,” to warn retail investors of the high risk involved in crypto derivatives and “discourage retail investors from trading with unregulated entities which could be fraudulent.”

While MAS has adopted a “buyer beware” approach to retail investors, MAS has also issued circulars to financial institutions requiring them to comply with additional measures if they offer crypto products to retail investors. Some of these include requirements to warn retail investors of the risks involved in crypto derivatives, limitations on advertisements and additional margins to be collected from retail investors to mitigate the risk of large losses.

Currently, Singapore has four approved domestic exchanges for crypto derivatives regulated under the SFA. These include Asia Pacific Exchange, ICE Futures Singapore, Singapore Exchange Derivatives Trading, and Singapore Exchange Securities Trading Limited. Additional exchanges have applied for the necessary licenses from MAS to conduct these activities.

As of 2021, crypto derivatives on approved exchanges remain relatively limited. Cryptocurrency derivatives traded through financial institutions in Singapore currently amount to less than 1% of all derivatives trading activity on SGX.