Singapore finalises new regulatory framework for Stablecoin

On 15 August 2023, the Monetary Authority of Singapore (“MAS”) announced a new stablecoin regulatory framework to ensure high value stability for stablecoins regulated in Singapore. This framework will apply to single-currency stablecoins ("SCS") pegged to the Singapore Dollar or any G10 currencies, issued in Singapore. In addition, the MAS has also published its responses received on the public consultation in October 2022 (the "Consultation"). This article aims to provide a general overview of the key requirements of the SCS framework.

What are stablecoins?
Stablecoins are a category of cryptocurrencies designed to maintain stable value by being linked to other assets. According to the MAS and for present purposes, stablecoins are digital payment tokens designed to maintain a constant value against one or more specified fiat currencies.

Under the existing Payment Services Act 2019 (the "PSA") framework, stablecoins are treated as digital payment tokens (“DPT”). Entities that provide the services of dealing in and/or facilitating the exchange of stablecoins in Singapore would fall within the scope of regulated DPT services. These entities are regulated primarily for money laundering and terrorism financing, and technology risks.

As Singapore continues to grow its digital assets ecosystem, the MAS emphasises the need to establish a regulatory regime that supports the development of credible and reliable stablecoins that facilitate digital transactions. They further highlighted that the existing provision under the PSA is inadequate as it lacks the regulation to ensure that stablecoins maintain a high degree of value stability and stabilisation mechanisms.

Therefore, the MAS has invested in developing a rigorous regulatory framework to ensure a sound stablecoin ecosystem in Singapore.

Key requirements for MAS-regulated SCS issuers
The key requirements of the new SCS framework can be broadly categorised into four categories which SCS issuers must need:

(i)  reserve assets to provide a high degree of assurance of value stability;

(ii) SCS-to-fiat redemption timeline;

(iii) capital/prudential requirement; and

(iv) white paper issuance. SCS issuers whose stablecoins fulfil all requirements under the SCS framework will be labelled "MAS-regulated stablecoins"

SCS-related intermediation service providers
The MAS recognises that there are intermediaries offering SCS-related services and has provided the following guidelines for these service providers:
(a) SCS will continue to be treated as DPTs under the PSA for the purposes of non-issuance activities.

(b) Non-issuance SCS activities carry the same risks as DPT-related services.

(c) Intermediaries offering SCS-related services (i.e. non-issuance activities) such as dealing in or facilitating the exchange of MAS-regulated SCS, will have to be regulated as a DPT service provideunder the PSA.
 
Bank and non-bank SCS issuers
The MAS has confirmed that banks and non-bank entities are allowed to issue SCS.

For non-banks SCS issuers, their adherence to the SCS framework is determined by the total value of SCS they have in circulation. If the total value exceeds S$5 million, the issuer must obtain a major payment institution ("MPI") license to conduct the "Stablecoin Issuance Service". They are subject to the SCS framework and can label their SCS as "MAS-regulated stablecoin". Conversely, issuers with SCS in circulation below S$5 million are exempt from the purview of the SCS framework. Consequently, such issuers cannot label their SCS as "MAS-regulated stablecoin".

For banks, the MAS has explained in the Consultation that they are exempted from the requirement to obtain a PSA license to carry on a business of providing any payment services, and this will continue to be the case when banks carry out the "Stablecoin Issuance Service".

Other requirements
Besides the new requirements mentioned above, regulated SCS issuers must also abide by the existing antimoney laundering and combating the financing of terrorism (“AML/CFT”) policies and measures, as well as the technology risk management guidelines which apply to all regulated payment service providers and banks currently.

Stablecoin Issuance Service
MAS plans to continue with its proposal to add "Stablecoin Issuance Service" as an additional payment service under the PSA. This service will cover all the important activities involved in issuing stablecoins, such as custody of SCS issued and management of the reserve assets backing the SCS.

Conclusion
MAS introduction of a SCS framework for issuing stablecoins is a significant and welcomed development.

This new framework fills the previously identified gap within the PSA concerning the value stabilisation mechanisms of stablecoins. By introducing the "Stablecoin Issuance Service" as a regulated activity under the PSA, MAS ensures that SCS issuers adhere to the guidelines that aim to preserve the SCS value through reserve assets, redemption protocols, capital requirements, and enhanced transparency with mandatory white paper disclosures. As MAS fortifies Singapore's stature as a leading global hub for digital assets, this initiative marks a pivotal step towards maintaining financial integrity and stability in the rapidly evolving digital currency landscape, addressing key regulatory challenges and setting a precedent for sound stablecoin ecosystems.