The custodian as trustee
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Terms of service and regulatory overlay
Until 2024 whether a Singapore crypto custodian was a trustee depended entirely on its terms. The failures of Hodlnaut, Zipmex and Vauld in 2022 showed how often those terms left customers as unsecured creditors (Chapter V). The Monetary Authority of Singapore responded in its consultation of October 2022 and its response of 3 July 2023. It proposed that licensed digital payment token service providers hold customer assets on trust in segregated accounts, reconcile daily, and maintain records allowing each customer's entitlement to be identified.1 Those requirements were implemented by amendments to the Payment Services Regulations that took effect in October 2024. A licensee that provides custody must now hold customer assets on trust for its customers, segregate them from its own assets, and keep records sufficient to identify each customer's entitlement.2
The regulatory rule does not itself create a trust in private law. A licensee that breaches the rule commits a regulatory offence, but whether the customers are beneficiaries still depends on the trust having been validly constituted. Three consequences follow for drafting. The custody terms of a licensee must contain an express declaration of trust that satisfies the three certainties. The declaration must be consistent with the operational reality of segregated wallets and daily reconciliation, since a court reading the terms against the facts will notice if the platform's own treasury sits in the "customer" wallets. And the terms must deal with the shortfall case, because a trust that is silent on what happens after a hack leaves the pro rata rule to apply by default.
Unlicensed and offshore custodians
The MAS rules bind only licensees and the exempt entities within the Singapore perimeter. A Singapore-resident customer who uses an offshore exchange is governed by that exchange's terms and by whatever law they select. Most offshore terms state that assets are the property of the exchange, which places the customer in the position of an unsecured creditor of a foreign company. The Singapore courts can still grant relief against such an exchange where it has assets or operations in Singapore, as CLM v CLN showed, but they cannot convert a contractual claim into a proprietary one by sympathy.
| Arrangement | Trust? | Customer's position on insolvency | Comment |
|---|---|---|---|
| MAS-licensed custodian, terms declare trust, segregated wallets, daily reconciliation | Yes | Beneficiary; assets returned in specie subject to pro rata shortfall | Regulatory requirement since October 2024 |
| Licensed custodian, terms silent on trust, omnibus wallets | Doubtful | Likely unsecured creditor on Quoine reasoning | Should no longer exist for licensees |
| Offshore exchange, terms state assets become exchange property | No | Unsecured creditor | Contractual claim for redelivery of equivalent assets |
| Exchange "earn" or lending product, assets lent to platform | No | Unsecured creditor; often subordinated in practice | Hodlnaut and Vauld pattern |
| Self-custody with multi-signature, keys held by owner and a Singapore co-signer | No trust needed | Owner retains title throughout | Co-signer owes contractual and possibly fiduciary duties |
| Family trust holding tokens, licensed trust company as trustee, sub-custody with licensed DPT custodian | Yes (two layers) | Beneficiaries claim through trustee; trustee claims as beneficiary of custody trust | Preferred structure for private wealth |
Notes
- MAS, Response to Public Consultation on Proposed Regulatory Measures for Digital Payment Token Services (Part 1), 3 July 2023, referred to in ByBit [2023] SGHC 199 at [29]. ↩
- Payment Services Regulations 2019, as amended with effect from 4 October 2024, on safeguarding of customer assets by digital payment token service providers. See Part K, Chapter II for the regulatory detail. ↩
For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of October 2026.