MAS Consults on Crypto, Stablecoin, Regulation

The Monetary Authority of Singapore (MAS) has published two consultation papers aimed at establishing a regulatory framework for cryptocurrency payments as well as for stablecoin-related activities. It says that while trading in cryptocurrencies is “highly risky” and “not suitable for the general public”, they play a supporting role in the broader digital asset ecosystem, and it would “not be feasible to ban them”.

On stablecoins, the current regulatory framework focuses largely on money laundering and terrorism financing risks, however the MAS proposes to expand this to ensure that regulated stablecoins have “a high degree of value stability”. MAS will regulate the issuance of stablecoins which are pegged to a single currency (SCS) where the value in circulation exceeds SGD 5 million.

Under this regulation, stablecoin issuers must hold reserve assets in cash, cash equivalents or short-dated sovereign debt securities that are at least equivalent to 100% of the par value of the outstanding coin in circulation, and these assets must be denominated in the same currency as the pegged currency. Requirements on audit and segregation of reserves, and timely redemption at par value will also apply.
All stablecoins issued in Singapore can be pegged only to the Singapore dollar or any Group of Ten (G10) currency and issuers will be required to publish a white paper disclosing details of the coin, including the redemption rights of holders.
Issuers must, at all times, meet a base capital requirement of the higher of SGD 1 million or 50% of annual operating expenses of the issuer. They are also required to hold liquid assets which are valued at higher of 50% of annual operating expenses or an amount assessed by the issuer to be needed to achieve recovery or an orderly wind-down.

Banks in Singapore will be allowed to issue stablecoins as well, and under the proposal no additional reserve backing and prudential requirements will apply when the coin is issued as a tokenised form of bank liabilities given the existing rigorous capital and liquidity frameworks applied to banks.

For non-issuance services, digital payment token (DPT) service providers can offer all types of stablecoins provided that they clearly label the MAS-regulated coin to distinguish them from the unregulated ones. “This will help customers make informed decisions on the risks involved in using unregulated stablecoins,” MAS states.

On the digital payments front, MAS says to reduce the risk to consumers from speculative trading in cryptocurrencies, it will require that DPT service providers ensure proper business conduct and adequate risk disclosure.

To this end it proposes measures two cover three broad areas; consumer access, business conduct and technology risks. Under the proposals, DPT service providers will be required to provide relevant risk disclosures to enable retail consumers to make informed decisions regarding cryptocurrency trading. They must also disallow the use of credit facilities and leverage by these consumers.
In addition, DPT service providers will be required to implement proper segregation of customers’ assets, mitigate any potential conflicts of interest which arise from the multiple roles they perform, and establish processes for complaints handling.
Finally, similar to other financial institutions such as banks, DPT service providers will be required to maintain high availability and recoverability of their critical systems.
MAS warns that notwithstanding these regulatory measures, consumers must continue to exercise utmost caution when trading in DPTs and must take responsibility for such trading. “Regulations cannot protect consumers from losses arising from the inherently speculative and highly risky nature of DPT trading,” it states.

“The two sets of proposed measures mark the next milestone in enhancing Singapore’s regulatory approach to foster an innovative and responsible digital asset ecosystem,” says Ho Hern Shin, deputy managing director (financial supervision), MAS. “Regulations go hand-in-hand with innovation in financial services. The enhanced regulatory regime for stablecoins aims to support the development of value-adding payment use cases for stablecoins in Singapore.

“As we continue to partner industry players to explore the potential benefits of tokenisation and distributed ledger technology, MAS will make appropriate adjustments to its regulatory regime to address the associated risks,” she adds.