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On August 15, the Monetary Authority of Singapore (MAS) announced the features of the new regulatory framework governing stablecoins and their issuers in the country.
This takes into account feedback received for the public consultation in October 2022 on the proposed regulation of stable cocci. As part of the announcement, it also released its responses to the initial consultation detailing MAS’s rationale for the new rules.
According to the regulator, stablecoins are designed to maintain a fixed value relative to fiat currencies and when well regulated to preserve such value stability, they can serve as a reliable medium of exchange for the cryptoasset ecosystem.
Therefore, its regulatory framework for stablecoins will apply to single currency stablecoins (SCS) issued in Singapore that are pegged to the Singapore dollar or any G10 currency, as those currencies have high-quality liquid assets available to support the SCS.
SCS issuers will need to meet key requirements relating to:
- Stability of value: reserve asset requirements related to composition, valuation, safekeeping and auditing.
- Capital: minimum share capital and liquid assets to be maintained in order to reduce the risk of insolvency and allow for an orderly exit if necessary.
- Redemption at face value: the face value of SCS to holders which is returned within five business days of the redemption request.
- Disclosure: appropriate disclosures to users, including information on the SKS value stabilization mechanism, the rights of SKS owners, as well as the results of the reserve fund audit.
Not all stablecoin issuers will be able to meet these requirements, and only those who can will be able to apply to MAS to have their stablecoins recognized and labeled as “MAS Regulated Stablecoins”.
This allows users to easily identify MAS-regulated stablecoins from other crypto-assets and perform an appropriate risk assessment when choosing to deal with unregulated stablecoins, which may not provide the same value stability protection as MAS-regulated ones.
Consultation answers
The responses to the MAS consultation are broadly in line with what it originally proposed last October, with the main departure being that tokenized bank liabilities need not be subject to the SCS framework due to the different risks involved compared to fully asset-backed stablecoins.
Other changes – such as those relating to the amount required for insolvency charges and the authorization to hold reserves abroad – may be seen as more acceptable given that MAS accepts industry feedback when less risk is involved.
The new rules are a good first step in addressing the main risks identified by MAS for privately issued stablecoins compared to government-backed fiat currencies. They ensure that supposedly reserve-backed stablecoins are indeed so, with safeguards for issuers – for example, reserve audits, prudential requirements and timely redemptions – to preserve financial stability and investor protection that would otherwise be lacking.
Frame change
At the same time, MAS clearly recognizes that the framework will and must change in the future. He repeatedly stated in his answers that he will monitor both market and regulatory developments in order to improve the framework over time in areas such as multi-jurisdictional issuance and systemically stable coin.
It is important to remember the initial context for the proposed SCS framework, which was introduced after the collapse of TerraLuna. It has also come alongside the growing popularity of stablecoins as a viable form of exchange between digital assets and traditional finance, and increasing scrutiny from global regulators.
Therefore, the SCS framework arose out of the need to balance different priorities and to that extent fulfills the regulatory approach of the MAS that supports stablecoins as innovative payment use cases and issuers as well utility service providers.
It was never intended to support the retail sale of stablecoins in general, which is still permitted and regulated under the existing digital payment token regime, although not encouraged by MAS.
Regulation of Stablecoins APAC
