The Monetary Authority of Singapore (MAS) has finalised its regulatory framework for stablecoins, taking into account and addressing feedback received from a public consultation in October 2022.
Stablecoins are emerging as a new class of digital payment tokens, with the potential to become a widely used payment instrument.
On 26 October 2022, MAS issued a public consultation paper on the overall regulatory approach for stablecoin-related issuance, highlighting the key requirements that would be imposed on such activities. The consultation closed on 21 December 2022, and in July 2023 MAS announced measures intended to ringfence customers’ cryptocurrency assets and enhance customer protection.
MAS announced on 15 August 2023 the features of a new regulatory framework that seeks to ensure a high degree of value stability for stablecoins regulated in Singapore.
The new regulatory framework will apply to single-currency stablecoins (SCS) pegged to the Singapore Dollar or any G10 currency (including the US dollar) that is issued in Singapore. “Stablecoin Issuance Service” will be included as an additional payment service under the Payment Services Act 2019 (the PS Act). Non-SCS will continue to be subject to the existing regulatory regime under the PS Act, which applies to digital payment tokens, and will not be prohibited from being issued, used, or circulated within Singapore.
Only stablecoin issuers that fulfil all requirements under the framework can apply to MAS for their stablecoins to be recognised and labelled as “MAS-regulated stablecoins.” All other digital payment token service providers and persons will be prohibited from using the term “MAS-regulated stablecoin” or any derivatives of the term. The regulatory label will enable users to easily distinguish MAS-regulated stablecoins from other digital payment tokens, including “stablecoins” that are not subject to MAS’s stablecoin regulatory framework.
Some of the key requirements imposed on issuers of MAS-regulated SCS include the following:
Reserve Assets: SCS issuers are required 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. Reserved assets must be denominated in currency of stablecoin peg and held in cash, cash equivalents, or three-month debt securities issued by, amongst others, a government or central bank. The reserve assets are subject to an annual audit and are to be independently attested to on a monthly basis, with such monthly report to be published on an issuer’s website.
Segregation/Custody of Reserve Assets: MAS also announced that it would proceed with the proposed requirement for SCS issuers to hold reserve assets in segregated accounts separate from their own assets (which are not reserved). Custodians can be financial institutions licenced for custodial services in Singapore or overseas-based custodians, provided that such overseas-based custodians have a minimum credit rating of “A-” and have a branch in Singapore that is regulated by MAS to provide custodial services.
Base Capital/Solvency: SCS issuers must have a minimum base capital of either $1 million or 50% of their annual operating expenses, whichever is higher. They are also required to hold liquid assets valued at more than half of their annual operating expenses or an amount needed to achieve recovery or an orderly wind-down. The amount assessed to achieve recovery or an orderly wind-down is to be independently verified. This is intended to provide an additional layer of verification on the appropriate amount of liquid assets that would be sufficient to meet the regulatory objective.
Business Restrictions: SCS issuers are prohibited from providing other non-issuance services (e.g., lending, staking, dealing in digital payment tokens other than the SCS being issued and recognised as MAS-regulated stablecoin). The SCS issuer also cannot have a stake in any other entity. This is intended to ringfence and mitigate risks to the SCS issuer in lieu of a comprehensive risk-based capital regime. That said, such activities can still be conducted from other related entities (e.g., a sister company in which the SCS issuer does not have a stake).
Redemption: SCS issuers are required to return the par value of MAS-regulated SCS to holders within five business days. The redemption timeline is intended to strike a balance between remaining responsive to users’ requests and ensuring that there is enough time for the SCS issuer to do so in an orderly manner under various stress situations. Redemption conditions (if any) must be reasonable and disclosed upfront.
SCS Issued in Multiple Jurisdictions: MAS will not allow multijurisdictional issuance at the onset and will require SCS issuers to issue solely out of Singapore if such issuers wish for their SCS to be recognised as an “MAS-regulated stablecoin” under the SCS framework. At present, MAS is of the view that it is difficult to establish regulatory equivalence and cooperation with other jurisdictions given the nascent stage of stablecoin regulations globally, making it difficult to monitor and establish the adequacy and availability of reserve assets held in an overseas jurisdiction that may be utilised towards redemption requests in another jurisdiction.
Segregation of Customers’ SCS: SCS intermediaries are required to segregate customers’ MAS-regulated SCS from the intermediaries’ own assets.
Disclosure: SCS issuers are required to issue a white paper disclosing details such as those relating to the operations of the SCS (including value-stabilising mechanism, technology adopted), risks arising from the use of the SCS, and rights and obligations relating to the SCS (e.g., redemption rights).
MAS also clarified that MAS-regulated SCS (1) are not deposits, (2) will not qualify as insured deposits, and (3) will not be covered under the Deposit Insurance Scheme under the Deposit Insurance and Policy Owners’ Protection Schemes Act.
Any person that misrepresents a token as an “MAS-regulated stablecoin” may be subject to penalties under MAS’s stablecoin regulatory framework and placed on MAS’s Investor Alert List.
The finalisation of the regulatory framework will give stablecoin issuers clarity and certainty as to the regulation of SCS in Singapore.
Given the evolving nature of stablecoin and ongoing developments in the stablecoin regulatory landscape around the world, issuers should note that the regulatory framework for stablecoin is likely to be further refined and clarified going forward. MAS has stated that it will continue to monitor developments in the stablecoin landscape, with a view to bringing other types of tokens into the SCS framework.
In relation to the current restrictions against SCS issued in multiple jurisdictions for issuers that wish for their SCS to be recognised as an “MAS-regulated stablecoin,” MAS has stated that it will continue to monitor global regulatory and technical developments relating to stablecoins and may consider formal regulatory cooperation mechanisms with other jurisdictions as stablecoin regulations mature over time. It is important for stablecoin issuers to remain up to date on any changes in this regulatory space.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following:
*A solicitor of Morgan Lewis Stamford LLC, a Singapore law corporation affiliated with Morgan, Lewis & Bockius LLP