As part of its efforts to develop an innovative and responsible digital-asset ecosystem in Singapore, the Monetary Authority of Singapore (MAS) on 26 October 2022 released a consultation paper on proposed regulatory measures relating to certain stablecoin issuers.
On 15 August 2023, the MAS published its response to public feedback on the consultation paper. The MAS confirmed its intention to regulate stablecoin-related activities under a new, single-currency stablecoin (SCS) framework (the Framework), under which issuers of MAS-regulated stablecoins will need to meet specific requirements relating to reserve assets, redemption at par and disclosures, as well as prudential and solvency requirements.
As a next step, the MAS proposes to separately publish details on the regulatory requirements, legislative amendments and transitional arrangements in this area, at a date to be confirmed.
New regulations targeted at stablecoin issuance
Under the current Payment Services Act 2019 (PS Act) framework, stablecoins are treated as digital payment tokens (DPTs). DPT service providers are regulated primarily to counter money-laundering, terrorism-financing and technology risks.
Stablecoin issuers are presently not, however, regulated to ensure the stability of the stablecoins’ value. Accordingly, the MAS is proposing to regulate certain stablecoin activities under a new SCS framework.
In line with the MAS’ heightened focus on consumer protection, issuers and their intermediaries will be required to use the term “MAS-regulated stablecoins” to help consumers distinguish SCS, which will be regulated differently from other DPTs.
To ensure that SCS can enjoy a strong reserve backing with high-quality liquid assets, only SCS pegged to the Singapore dollar or G10 currencies that are issued in Singapore will come under the scope of the Framework. Other types of stablecoins (including algorithmic stablecoins) will continue to be subject to the existing DPT regime.
“Stablecoin issuance service” will be a new regulated payment service under the PS Act. This additional payment service will encapsulate the necessary activities that a stablecoin issuer undertakes, including custody of SCS issued by the issuer and management of the reserve assets backing the SCS.
An issuer whose SCS in circulation exceeds or is anticipated to exceed S$5 million in value will have to obtain a major payment institution (MPI) licence to be recognised as an issuer of MAS-regulated SCS. By contrast, SCS issuers that do not exceed the value threshold for an MPI will need to obtain a standard payment institution licence to provide DPT services. Only SCS issuers that obtain an MPI licence for a stablecoin issuance service under the Framework will be recognised as an issuer of MAS-regulated SCS.
MAS-regulated SCS issuers will not be required to apply for a licence for other DPT services, but will also be restricted in respect of the activities they can conduct (see further “Prudential requirements – Business restrictions” below).
Reserve asset requirements
The MAS intends to maintain a simple framework for reserve assets and will thus require SCS issuers to maintain a portfolio of reserve assets with very low risk. Such SCS issuers will be required to maintain a robust and resilient risk management policy for reserve assets, covering aspects such as credit, liquidity and concentration risk. Where necessary, SCS issuers must be able to demonstrate to the MAS how they review and determine the appropriate buffers in order to ensure that the valuation of their reserve assets is maintained at a level that is at least 100% of the outstanding SCS in circulation at all times.
MAS-regulated SCS issuers will be required to hold the reserve assets in segregated accounts, separate from their own assets which are not reserves. Custody of assets by overseas-based custodians may be allowed, provided that such custodians have a minimum credit rating of “A-”, and have a branch in Singapore regulated by the MAS to provide custodial services. One concession provided by the MAS is that providers will be allowed to commingle an individual customer’s MAS-regulated SCS and/or other DPT with those of other customers on an omnibus basis.
Reserve assets will be subject to external audit, and will have to be independently attested to on a monthly basis. Attestations will have to be published on the issuer’s website and submitted to the MAS no later than the end of the following month.