MAS CONSULTATION ON REGULATIONS FOR STABLECOIN ACTIVITIES
On 26 October 2022, the Monetary Authority of Singapore (MAS) consulted on its proposal to regulate certain types of stablecoin issuers and intermediaries. The MAS also on the same day consulted on proposed measures surrounding provision of digital payment token (DPT) services. Integrity Consulting has summarised that consultation previously (see additional measures for DPT service providers).
Today, stablecoins are regarded as DPTs under the Payment Services Act 2019 (“PS Act”). Providers of dealing in and/or facilitating exchanging of stablecoin services are viewed as providing DPT services and mainly regulated for money laundering (ML) and terrorism financing (TF), technology and cyber risk.
MAS’ consultation paper observed that the PS Act does not require stablecoins to maintain a high degree of value stability or have specific stabilisation mechanisms.
Proposed New “Stablecoin Issuance Service”
MAS intends to retain the current regulatory regime while introducing a new regulated activity of “stablecoin issuance service” under the PS Act.
This new regulated activity will only apply to certain types of stablecoins issued in Singapore, namely single-currency pegged stablecoins with a circulation exceeding or expected to exceed S$5 million in value. In such a case the issuer must obtain a major payment institution (MPI) licence and comply with existing MPI obligations such as ML/TF, technology and cyber risk management requirements, while being subject to additional “stablecoin issuance service” requirements. MAS proposed to introduce a term such as “regulated stablecoin” to denote SCS issued by firms providing “stablecoin issuance service”. MAS also proposed initially to allow only issuance of “regulated stablecoin” pegged to the Singapore dollar or the Group of Ten (“G10”) currencies, namely, 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.
Issuers with SCS circulation lower than S$5 million need only obtain a standard payment institution (SPI) licence should they provide regulated DPT services. They will not be subject to additional “stablecoin issuance service” requirements and will not be recognized as issuers of “regulated stablecoin”.
Additional requirements imposed on “stablecoin issuance service” providers
The key additional “stablecoin issuance services” requirements proposed by MAS are:
- Issuers must hold reserve assets, denominated in the same currency as the pegged currency, to back “regulated stablecoin” issued. Reserve assets must be valued on a marked-to-market basis daily and equal at least 100% of the par value of “regulated stablecoin” circulating at all times. Reserve assets may only be cash, deposits with certain institutions and certain high-grade, liquid securities, be held separately from non-reserve assets with permitted custodians, with monthly attestation and annual audits of compliance with reserve asset requirements.
- Issuers must take various measures to offer redemption to fiat within 5 business days from the date of receiving a legitimate redemption request at any time of the “regulated stablecoin” for the pegged or other currency of equivalent value at par value. Any redemption conditions to be imposed must be reasonable and clearly disclosed on the issuer’s website or other public communication channel.
- Issuers must publish a white paper on its website to disclose certain key information that is relevant to holders of the “regulated stablecoin” and update such information as needed.
- Issuers must:
- Have base capital of the higher of S$1 million or 50% of annual operating expenses
- Hold liquid assets valued higher than 50% of annual operating expenses at all times or an amount assessed by the issuer to be needed to achieve recovery or orderly wind-down
- Not undertake other activities that introduce additional risks to itself.
Banks, who are today exempt from having to obtain a licence under the PS Act to carry on a business of providing any payment service will continue to be exempt under the PS Act when carrying out the “stablecoin issuance service”. Additionally, the requirements above for “stablecoin issuance service” will be modified for banks.
The consultation paper addresses also proposed measures on non-issuer intermediaries who offer services related to stablecoins.
The consultation paper imposes novel measures that warrant careful reading by firms that provide or are considering issuance or non-issuance services in Singapore relating to stablecoins. The proposed rules are welcome in elucidating how firms should introduce controls to elevate the standards of stablecoin transactions.
Integrity Consulting offers compliance consulting services, as well as licensing and registration consultations for Capital Market Service Licences, Payment Services Licence and other licences in Singapore.
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