Singapore Central Bank Issues 9-Year Ban to Three Arrows Capital Founders: Here’s Why

The crypto world is no stranger to dramatic turns, and the latest saga involves the once-high-flying crypto hedge fund, Three Arrows Capital (3AC). Singapore, a major financial hub, has just dropped the hammer on 3AC’s co-founders, Kyle Davies and Su Zhu. What exactly happened, and what does this mean for the future of crypto regulation? Let’s dive into the details of this significant development.

Singapore’s MAS Bans 3AC Founders: The Headline

In a decisive move, the Monetary Authority of Singapore (MAS), the country’s central bank, has issued nine-year prohibition orders against Kyle Davies and Su Zhu. This ban, effective from September 13th, prevents them from engaging in any regulated activities within Singapore’s financial sector. But why such a harsh penalty?

What Did Zhu and Davies Do? Unpacking the Violations

MAS didn’t just issue these bans out of the blue. Following the spectacular collapse of 3AC, further investigations by MAS revealed a series of serious violations of Singapore’s securities laws. Here’s a breakdown of the key issues:

• Failure to Notify MAS of a New Business Representative: 3AC allegedly didn’t inform the central bank about the appointment of a new key figure in their business operations.
• Providing False Information to the Regulator: This is a critical breach of trust. Supplying incorrect details to MAS undermines the regulatory process and can have far-reaching consequences.
• Lack of an Appropriate Risk Management Framework: In the high-stakes world of finance, especially crypto, robust risk management is paramount. MAS found that 3AC’s framework was simply not up to par.

These findings are not minor oversights. As Loo Siew Yee, MAS’ assistant managing director, emphasized, these were “flagrant disregard of MAS’ regulatory requirements and dereliction of their directors’ duties.” This strong statement underscores the seriousness with which Singapore views these violations.

Beyond the Ban: What Else Are Zhu and Davies Prohibited From?

The prohibition orders are quite comprehensive. Davies and Zhu are not just barred from specific activities; they face a broad range of restrictions:

• No Regulated Activities: They cannot participate in any business activities regulated by MAS during the nine-year period.
• Management Roles are Off-Limits: They are prohibited from managing any capital market services business in Singapore.
• Director and Substantial Shareholder Restrictions: They cannot act as directors or be substantial shareholders in any capital market services business within Singapore.

Essentially, MAS is ensuring that Zhu and Davies are completely removed from positions of influence and control within Singapore’s regulated financial industry for a significant period.

Flashback: 3AC’s Downfall and Previous Reprimand

This isn’t the first time 3AC has faced scrutiny from MAS. Back in June of last year, just before 3AC’s bankruptcy filing, MAS had already reprimanded the hedge fund for similar issues:

• Providing false information.
• Failing to notify MAS about changes in directorship (Zhu and Davies themselves).
• Exceeding the permissible assets under management threshold.

These earlier reprimands foreshadowed the deeper troubles at 3AC and highlight a pattern of regulatory non-compliance.

The Crypto Winter’s Bite: 3AC’s Collapse Explained

To understand the full picture, it’s important to remember the context. 3AC’s implosion was a major event in the 2022 crypto market crash. Fueled by aggressive leveraged positions, 3AC was heavily exposed when the Terra ecosystem collapsed. This triggered a domino effect, leading to billions in loan defaults and ultimately, 3AC’s bankruptcy.

Key Factors in 3AC’s Demise:

• Terra (LUNA) Collapse: The dramatic failure of TerraUSD (UST) and LUNA sent shockwaves through the crypto market.
• Excessive Leverage: 3AC employed high levels of leverage, amplifying both gains and losses.
• Contagion: 3AC’s troubles rippled through the industry, impacting other firms and contributing to the broader market downturn.

What’s Next for 3AC’s Founders and Creditors?

The legal battles are far from over. Creditors are claiming that 3AC owes a staggering $3.5 billion. Liquidators are actively working to recover around $1.3 billion from Zhu and Davies personally, alleging that they incurred this debt while the firm was already insolvent. This recovery process is likely to be complex and lengthy.

Broader Implications: Crypto Regulation Tightening?

Singapore’s strong stance against 3AC’s founders sends a clear message: regulatory compliance in the crypto space is not optional. This action could signal a broader trend of increased scrutiny and stricter enforcement by regulators globally.

Key Takeaways:

• Regulatory Scrutiny is Increasing: Expect more intense oversight of crypto firms.
• Compliance is Crucial: Crypto businesses must prioritize adherence to regulations.
• Accountability for Leaders: Executives will be held responsible for their firms’ actions and compliance.

In Conclusion: A Wake-Up Call for the Crypto Industry

The nine-year bans for Su Zhu and Kyle Davies mark a significant moment in the ongoing evolution of crypto regulation. It’s a stark reminder that even in the decentralized world of crypto, traditional financial principles and regulatory frameworks are increasingly important. This case serves as a wake-up call for crypto businesses and their leaders to prioritize compliance, transparency, and responsible risk management. The message from Singapore is loud and clear: misconduct will not be tolerated, and regulators are ready to take decisive action to protect the integrity of the financial system.