The MAS (Monetary Authority of Singapore) has issued a consultation paper on the proposed framework for stablecoins regulations in Singapore. The paper sets out key elements of the proposed framework and invites feedback by the 21st of Dec.
The proposed framework outlines:
- How stablecoins are planned to be categorised
- What are the different regulatory requirements for stablecoin issuers, banks issuing stablecoins, as well as entities acting as intermediaries in stablecoins transactions and their lifecycle
The MAS proposes to introduce ‘single currency pegged stablecoin’ (SCS) asset category that would include assets with value pegged to one fiat currency. A new regulatory regime will be created for SCSs issued in Singapore. A new regulated activity of ‘stablecoin issuance service’ will be introduced in the PS Act. Activities related to assets that may be commonly referred to as ‘stable coins’ but not following within the remit of the new term ‘SCS’ would still be governed by the existing regulatory framework (i.e. DPT – Digital Payment Tokens- regime under PS Act).
What would fall into the definition of a single currency pegged stablecoin (SCS)?
Stablecoins pegged to the value of one fiat currency.
The MAS stipulates that (at least in the initial phase) the regulatory regime would allow for the issuance of SCS pegged to the Singapore dollar of one of the G10 currencies. SCS definition would also include e-money (i.e. where e-money takes a tokenised form and can be transferred on a P2P basis).
What would fall outside of the definition of a single currency pegged stablecoin (SCS)?
The following assets will NOT be considered as SCS and therefore will continue to be subject to the existing DPT Regime under the PA Act:
- Assets with a value pegged to a few currencies or a basket of different assets (the equivalent of ‘asset referenced tokens’ under the EU’s MiCA)
- Algorithmically-pegged stablecoins
What is considered as ‘Stablecoin Issuance Service’ that will be a new regulated activity?
This category will refer to entities that are based in Singapore and perform the function of controlling the total supply of, and minting and burning of SCS
What license would need to be obtained by the SCS issuers?
Issuers of SCS in circulation exceeding SGD 5 million will need to obtain a major payment institution (MPI) licence and will be recognised as an issuer of MAS-regulated SCS.
Issuers of SCS below this threshold will need to obtain a standard payment institution (SPI) license – will not be recognised as issuers of MAS-regulated SCS (however they have an option to voluntarily apply for an MPI licence).
Will banks be able to issue SCS?
SCS can be issued by banks as tokenised bank liabilities or not as a liability – i.e. segregated from the rest of the bank’s assets):
Banks that issue SCS as bank’s liability:
- Will be exempt from obtaining a license to issue SCS
- Will not have additional reserve backing and prudential requirements (given the obligations they are already subject to under the Banking Act)
Banks that issue SCS’ NOT as the bank’s liability (i.e. segregated from the rest of the bank’s assets):
- Will be subject to the same regulatory regime as SCS issuers
What will be the requirements for regulated stablecoin issuers?
Regulated SCS issuers will need to
- Meet ML/TF requirements, technology and cyber risk management applicable to all PSPs and banks today
- Meet the requirements around holding reserve assets (at least 100% of SCS in circulation) along with specific requirements on how they should be held (in cash and specified instruments)
- Issue SCSs pegged to Singapore dollar or one of G10 currencies
- Provide attestation re reserve assets on a monthly basis
- Hold reserve assets on segregated accounts (separate from its own assets)
- Observe redemption rights – all holders of SCS must have a direct legal right to redeem SCS for the pegged currency at par value
- Comply with disclosure requirements – issues white paper describing SCS, rights and obligations of issuer and holders
- Comply with prudential requirements – simplified capital regime with necessary restrictions to limit the risks to the SCS issuing entity, i.e.
- Base capital of higher of SGD 1 million or 50% of operating expenses of the issuer
- Solvency requirements – liquid assets must constitute than 50% of operating expenses
- Business restrictions – restrictions on additional business activities of the issuer
Will there be additional requirements for SCSs issued in multiple jurisdictions?
MAS notes that SCSs may be issued in multiple jurisdictions “by different entities that may have agreed in common issuance principles or by other related companies of the same SCS issuer.” In such cases, SCSs can be deemed ‘MAS-regulated’ only if the MAS is satisfied that SCS as a whole is subject to sufficient regulatory oversight. The MAS plans to do that either by requesting attestations from the issuers on this matter or through cooperation with regulatory bodies in different jurisdictions.
What will be the impact on DPTs/entities that are not stablecoin issuers?
SCS will continue to be treated as DPTs for the purposes of non-issuance activities- i.e. SCS related activities will fall within the regulated DPT services (e.g. buying and selling pf SCS).
The following requirements will be imposed on DPT offering SCSs:
- DPT offering SCS will need to label which SCS are regulated by the MAS
- DPT which offer services of arranging for the transmission of DPT will need to complete the transfer within 3 business days
- DPT providing services of transmission or custody of SCS will need to hold SCS separately from other customer’s assets and separately from DPT own assets
Are there different requirements proposed for systemic stablecoins?
The proposal stipulates that “the arrangements that collectively comprise the operations to facilitate transfers of SCS may be considered as payment system”.
The PS Act amendments will enable the MAS to supervise stablecoin arrangements as payment systems. For stablecoins that become ‘systemic’ (i.e. if disruption to the stablecoin arrangement could result in disruption to the financial system of Singapore) that will be more stringent requirements; however, the MAS notes that “at this point (…) no stablecoin arrangement in Singapore is likely to qualify as systemic.”