7 Key Areas to Know About The New Stablecoins Framework in Singaporeby Johanan Devanesan August 21, 2023
Stablecoins, emerging as a new category of digital payment tokens (DPTs), hold immense potential to transform payment methods. The Monetary Authority of Singapore (MAS) has streamlined and finalised its approach towards a framework for stablecoins in Singapore, taking into account feedback from stakeholders over the years.
Since the initial 2019 consultation paper, developments within the digital asset space have intensified the focus on the regulatory treatment of stablecoins in Singapore, highlighting the need for a standalone framework.
On 26 October 2022, MAS released a subsequent consultation paper, shedding light on the impending regulatory norms to be associated with stablecoin issuance and their intermediary functions, and receiving feedback from informed stakeholders which the regulatory authority has incorporated into the new framework.
Specifics of the SCS Framework
The MAS proposes to regulate single-currency stablecoins (SCS) pegged either to the Singapore dollar or the Group of Ten (the G10, comprising the Australian Dollar, British Pound Sterling, Canadian Dollar, Euro, Japanese Yen, New Zealand Dollar, Norwegian Krone, Swedish Krona, Swiss Franc and the United States Dollar) currencies, when issued in Singapore. This regulatory architecture, termed the “SCS framework”, leaves non-SCS under the existing Payment Services Act 2019 (PS Act) jurisdiction. With an eye on the changing landscape, MAS remains open to feedback regarding the extension of its oversight to SCS from outside Singapore.
The consensus among respondents favored the outlined regulatory scope. However, calls for expansion and apprehensions about the SCS framework’s exclusivity and prohibitions have emerged.
In light of the feedback, MAS intends to maintain its proposal, limiting the SCS framework to SCS pegged to the Singapore dollar or G10 currencies issued within Singapore. This decision prioritises high-quality liquid assets crucial for ensuring robust reserve backing for SCS. Other stablecoins, including those outside the scope of this framework, will remain under the DPT regulatory framework.
Conditions for Non-Bank and Bank SCS Issuers
For non-bank SCS issuers, those with a circulation below S$5 million will be exempt from SCS framework mandates. But for recognition under the SCS framework, issuers expecting their circulation to surpass this threshold can apply for the Major Payment Institution (MPI) license.
Bank SCS issuers received feedback highlighting differences between asset-backed stablecoins and tokenised bank liabilities. Acknowledging these nuances, MAS plans to exclude tokenised bank liabilities from the single-currency stablecoins framework in Singapore, though potential supplementary stipulations remain on the horizon.
The ‘MAS-regulated Stablecoin’ Label
From the 2022 consultation, there emerged a consensus favoring a distinct label for SCS governed by the SCS framework. To this end, the term “MAS-regulated stablecoin” will be reserved for such SCS, reinforcing the framework’s credibility.
Redeeming Stablecoins to Fiat in Singapore
The MAS-regulated stablecoin can be redeemed from SCS issuers for the par value, in fiat currency within five business days from the date of a legitimate redemption request. Requests can be made at any time, and claimants who have met reasonable redemption conditions and have a direct legal claim for equal-value redemption must be entertained.
Stipulations on Reserve Assets
MAS will mandate SCS issuers to maintain a low-risk reserve asset portfolio, emphasizing a robust risk management policy. Essential considerations like credit, liquidity, and concentration risk will be in focus. Moreover, SCS issuers must always ensure their reserve assets valuation stays at or above 100% of the circulating SCS.
Enhancing Transparency and Trust
MAS proposed that issuers hold all reserve assets for backing SCS in segregated accounts, within licensed financial institutions in Singapore, which was broadly supported by respondents. MAS also approved suggestions to allow custody of overseas-based custodians. provided they have a minimum credit scoring of “A-“.
In addition to holding reserve assets in segregated accounts, SCS issuers must undergo independent audits and review monthly. These attestations, crucial for transparency, should be made available on the issuer’s website and submitted to MAS promptly.
Addressing Solvency and Business Restrictions
Incorporating feedback, MAS has adjusted its solvency position, seeking independent audits to assess recovery strategies for SCS issuers. The ultimate objective is to align with the foundational goals of the stablecoins framework in Singapore.
SCS issuers will be required to maintain a minimum base capital of S$1 million under the SCS framework. They will predominantly focus on SCS issuance, avoiding ventures like lending services or fund management that come with elevated risks.
A Glimpse into the Future
Given the early stages of global stablecoin regulations, MAS currently discourages multi-jurisdictional issuance, emphasising the significance of the “MAS-regulated stablecoin” label. Nevertheless, as the landscape matures, MAS envisions future collaborations with other jurisdictions.
In conclusion, MAS underscores the importance of monitoring the influence of DPTs and SCS on monetary sovereignty and overall financial stability. The evolving DPT and SCS frameworks will guide MAS in ensuring a stable financial ecosystem in Singapore.