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Proposed regulatory changes show that the MAS sees stablecoins as a valid medium of exchange – provided they are securely backed. The revised framework, outlined in an MAS consultation paper, will expand current requirements to ensure that regulated stablecoins have value stability. Stablecoin issuers and intermediaries should start to review their business models against the proposals. As the regulatory environment for digital assets in Singapore takes shape, it’s those who can evolve in parallel who will be best placed for success.
The current regulatory approach for stablecoins doesn’t provide a mechanism to ensure that they maintain a high degree of value stability. The MAS’ consultation paper: Proposed Regulatory Approach for Stablecoin-Related Activities, addresses this issue, setting out a new regulatory regime.
Currently, a wide range of stablecoins is available. These vary in terms of their asset pegging as well as the mechanism that upholds their stability. The proposed stablecoin regulatory regime focuses only on single-currency pegged stablecoins, or SCS. The main reason for this is that have a stronger use case for payment and settlement. Under the proposed framework, only SCS that are pegged to the Singapore dollar or G10 currencies will be allowed, prioritising the elevation of the standard of SCS issued in Singapore.
Proposed regulatory framework and requirements imposed on SCS issuers
SCS can be issued by both non-bank entities and banks. Non-bank entities would be able to issue them as tokens, backed or collateralised by a pool of assets. Banks could alternatively issue SCS as tokenised bank liabilities. Banks in Singapore could also choose to issue SCS by managing the underlying reserve assets, segregating them from the rest of the banks’ assets.
To be recognised as an issuer of MAS-regulated SCS, the issuer would need to obtain a Major Payment Institution (MPI) licence under the Payment Services Act and the SCS in circulation should exceed, or are anticipated to exceed, S$5 million in value. Otherwise, the issuer would require a Standard Payment Institution (SPI) licence and wouldn’t be subject to the requirements for SCS issuers. Under the proposed framework, SPI licence holders wouldn’t be recognised as issuers of MAS-regulated SCS. Nevertheless, any SCS issuer that wishes to be recognised as an issuer of MAS-regulated SCS could apply for an MPI licence and be subject to the additional requirements.
Banks would continue to be exempted from the requirement to obtain a licence under the Payment Services Act.
The following table highlights the proposed regulatory framework and requirements for SCS issuers (non-banks and banks):
|Non-bank SCS Issuers (MPI licence holder)||Banks (SCS backed by segregated reserve assets)||Banks (SCS as tokenised bank liabilities)|
|AML/CFT||MAS Notice PSN02 & PSN03||MAS Notice 626|
|Tech & cyber risk management||Existing technology and cyber risk management standards on digital payment token (DPT) service providers and banks|
|Reserve asset (RA) backing (new)||RA held in cash, cash equivalents or debt securities with up to three-month residual maturity and issued by (i) central bank of pegged currency; or (ii) organisations that are both of a governmental and international character with a credit rating of at least AA–
RA valued on marked-to-market basis daily, at least equivalent to par value of SCS in circulation at all times
RA denominated in the pegged currency
Monthly disclosure (independently attested), and a yearly audit of the RA
Segregation and custody of the RA: With licensed banks, merchant banks and finance companies, and CMSLs licensed for custodial services in Singapore
|Redemption at par (new)||Direct legal claim for the redemption at par, accepting redemption requests at any time
Timely redemption (no later than five business days)
Any redemption conditions must be reasonable (e.g., fees, minimum redemption amount) and disclosed upfront
|White paper issuance (new)||Requirement to issue a white paper disclosing details, including a description of the issuer, its project, rights and obligations related to the token (e.g., redemption), risks etc.||N/A|
|Prudential (new)||Base capital requirements: Higher of S$1mil or six months’ operating expenses
Prohibited from provision of other non-issuance services e.g., lending of stablecoins/fiat, staking, trading. This can be done from a separate related entity in which the issuer doesn’t have a stake
|Existing risk-based capital and liquidity requirement under the Banking Act|
|Solvency (new)||Hold liquid assets valued at higher of six months’ operating expenses or the amount assessed by the entity needed to achieve recovery or orderly wind-down|
Proposed requirement on SCS issuers
For non-issuance activities, SCS will continue to be treated as DPTs and entities offering SCS-related services will be regulated if the service falls within the scope of regulated DPT services under the Payment Services Act.
The MAS does not intend to prohibit any stablecoins, including those issued overseas. DPT service providers (DPTSPs) which offer SCS should clearly label which SCS are regulated by the MAS. SCS which don’t fall into this category will be subject to the existing disclosure requirements under MAS Notice PSN08 on Disclosures and Communications.
Timely transfer of SCS
DPTSPs offering a MAS-regulated SCS transmission service would be required to complete the transfer in no more than three business days from the day the transfer request is received. This is in line with the money transmission requirement under the MAS’ Notice PSN07 on Conduct for domestic money transfer services.
Segregation of SCS
Entities providing transmission or MAS-regulated SCS custody services would be required to hold and segregate customers’ MAS-regulated SCS from other customers’ assets, while keeping its own assets in different custody accounts.
Implications for issuers and intermediaries
To comply with the regulatory changes, SCS issuers and intermediaries would need to re-evaluate their business models to determine where they fall under the new framework. The proposed regulatory ideas are still in the developmental stages and reflect the MAS’s prudent approach toward regulating stablecoins. These arrangements will likely provide a high degree of assurance of value stability to stablecoins.
As the MAS adopts a progressive regulatory approach that provides for increased measures if needed, adaptation is key. As the regulatory framework in Singapore takes shape, players that can conform to these changing regulations will flourish in Singapore’s digital asset ecosystem.
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