TL: DR Breakdown
- MAS’s 9-year ban on Three Arrows Capital co-founders signals intensified crypto regulation.
- The ban highlights the intensifying regulatory oversight in the crypto industry.
- The fund’s bankruptcy, fines in Dubai, and MAS actions serve as a wake-up call for financial industry executives.
Singapore’s central banking authority, the Monetary Authority of Singapore (MAS), has issued a nine-year prohibition against Kyle Davies and Su Zhu. These two high-profile individuals are the co-founders of Three Arrows Capital, a formerly prominent crypto hedge fund.
Singapore's MAS bans Zhu Su and Kyle Livingston Davies, founders of Three Arrows Capital, from financial activities for nine years. Reasons include, not reporting employment changes, giving false info, and lacking risk management.
— Crypto Kid (@jr_idrees) September 14, 2023
The ban makes it illegal for them to partake in regulated financial activities in Singapore for nearly a decade. Additionally, it prevents them from holding directorship roles or substantial shareholders in capital market services firms. The central bank’s decision stems from several alleged violations of Singapore’s securities laws.
In its statement dated September 14, MAS revealed it unearthed additional law violations while conducting an in-depth probe into the now-bankrupt Three Arrows Capital and its co-founders. Specifically, the allegations included failure to report hiring a new business representative, providing false information to MAS, and lacking an adequate risk management framework.
Moreover, this is not the first confrontation the fund and its founders have had with the regulator. Last June, just a day before Three Arrows Capital filed for bankruptcy, MAS had already reprimanded the firm. The reprimand focused on similar issues: providing false information and not informing the regulator about changes in the directorship.
The Fallout and MAS’s Stern Warning
Loo Siew Yee, the assistant managing director of policy, payments, and financial crime at MAS, articulated the central bank’s stance. “MAS takes a serious view of Mr. Zhu’s and Mr. Davies’ flagrant disregard of MAS’ regulatory requirements and dereliction of their directors’ duties,” she said. Consequently, MAS has pledged to take further action to “weed out” senior managers who commit such misconduct.
The ban comes after the firm suffered colossal losses following the catastrophic crypto market crash last year, triggered by the collapse of the Terra ecosystem. The crash left Three Arrows Capital exposed to billions in loan defaults. Creditors have since come forward, claiming the fund owes up to $3.5 billion. Liquidators are trying to claw back approximately $1.3 billion from the beleaguered co-founders.
Besides its troubles in Singapore, Three Arrows Capital has recently been fined by regulators in Dubai over another business called OPNX, which deals with crypto bankruptcy claims. Dubai’s regulatory body fined this company over $2.8 million for virtual assets.
The MAS prohibition orders against Davies and Zhu starkly warn financial industry leaders. Regulatory compliance is non-negotiable, and a cavalier attitude toward these requirements can result in severe repercussions.
Hence, this decision is bound to send ripples across the crypto and financial sectors in Singapore and beyond. Given the magnitude of the alleged violations and the stern actions by MAS, it’s clear that regulatory oversight in the rapidly evolving crypto space is intensifying. So, industry players should heed this as a wake-up call for heightened compliance and governance measures.
