Still coming to terms with the downfall of the crypto exchange FTX, a leading official in Singapore said that no amount of regulation could provide protection against the collapse in the crypto market because the asset class is untested.
Lawrence Wong, the deputy prime minister of Singapore, said that cryptocurrencies are extremely volatile and lack intrinsic value.
Therefore, he said that anyone trading crypto needs to be prepared to lose their entire investment because this risk cannot be eliminated with any type, or extent, of regulation.
Risk will persist
Wong also serves as the finance minister of Singapore and had spoken last week on this topic in a parliamentary session.
He informed legislators that measures would be introduced by the Monetary Authority of Singapore (MAS) for regulating financial institutions that offer crypto services.
These are referred to as digital payment token (DPT) service providers in Singapore. But, he had also added that their failure could not be prevented, which means that customers would suffer from losses.
Wong said that excessive risk, unsustainable business models, or fraud could cause crypto platforms to collapse.
He also asserted that FTX was certainly not the first crypto platform to go bankrupt and would not be the last.
The downfall of FTX had left MAS scrambling because it had resulted in 1.2 million registered users of the exchange suffering from losses.
But, Wong stated that the MAS cannot guarantee safe investment in crypto, even if regulations are implemented.
Risk awareness test
Some of the measures that the MAS wants to introduce include requiring potential retail investors to take a risk awareness test to determine if they can access crypto services.
In addition, they also plan to require the segregation of customer funds from that of the DPT service provider’s own, which would mean that customer funds are not lent out to anyone.
The regulatory authority also wants to prevent conflict of interest, which means that DPT service providers would not be permitted to operate trading platforms.
MAS also announced that before they finalize and implement regulations in the crypto space, they would get feedback from the public and the industry.
In the parliamentary session also Wong questioned the investment worth $275 million that Temasek had made in the now-defunct crypto exchange.
The sovereign wealth fund of Singapore, which is worth $300 billion, had issued a statement in which it said that their belief in SBF had been ‘misplaced’.
They also announced that all investments in the FTX crypto exchange had been written off.
While retail investors have been discouraged from investing in crypto by MAS and Wong, Temasek had minority stakes in FTX US as well as FTX International.
Wong said that there is a due diligence process used by institutions like Temasek for mitigating risks associated with all investments, but not all risks can be eliminated.
He admitted that Temasek’s loss was disappointing, but added that the team and the board would learn from this experience and make improvements in the future.
He said that an internal review was also being conducted at Temasek for studying its processes in order to obtain lessons that could be used in the future.
Wong went on to say that they were fully confident about the governance of Temasek and the GIC.