The Monetary Authority of Singapore (MAS) has clarified its regulatory approach to cryptocurrencies and the digital asset ecosystem. In this Update, we highlight several noteworthy regulatory developments regarding MAS’ regulatory approach to cryptocurrencies.
1. MAS Clarifies Its Regulatory Approach to Cryptocurrencies and the Digital Asset Ecosystem
On October 26, 2022, the Monetary Authority of Singapore (MAS) clarified that it will not entirely prohibit the offering of cryptocurrency services to consumers in Singapore, an option that a few jurisdictions considered1.
Although MAS has consistently warned consumers in Singapore regarding the hazards of cryptocurrency speculation, MAS will not be imposing an outright ban on cryptocurrency services as it is cognizant of the fact that cryptocurrency trading and services are cross-border in nature and any such prohibition is unlikely to be effective in limiting consumer harm.
To grow an innovative and responsible digital asset ecosystem in Singapore, MAS will adopt a risk-focused approach to regulate the digital asset ecosystem in Singapore. MAS will continue to seek to anchor high-quality players with strong risk management and value propositions, yet mitigate the risks of consumer harm and educate consumers on the risks of cryptocurrencies and their related services.
The measures being proposed by MAS are elaborated below.
2. Consultation on Regulatory Measures for Digital Payment Token Services
On October 26, 2022, MAS issued the “Consultation Paper on Proposed Regulatory Measures for Digital Payment Token Services.” The paper aims to impose a more comprehensive set of regulatory measures on digital payment token (DPT) service providers in Singapore to reduce the risk of consumer harm in light of the fact that consumers in Singapore are increasingly trading in cryptocurrencies despite consistent warnings issued by MAS regarding the hazards of cryptocurrency speculation.
The proposed regulatory measures will apply to licensed and exempt payment service providers under the Payment Services Act 2019 (PSA) that carry on business in providing DPT services. The proposed measures relate to customer access, business conduct, and technology risk management measures. The main aim of the measures is to limit consumer access to cryptocurrencies and improve business conduct of DPT service providers.
As a first step to implementing the proposed regulatory measures, MAS will issue a set of guidelines that takes into account the responses to the consultation paper, and it will provide a transition period of six to nine months for DPT service providers to implement the guidelines.
Thereafter, MAS will publish, for further consultation, the details on the regulatory requirements and the draft subsidiary legislation to be issued to formalize the requirements into binding law.
The consultation period closed on December 21, 2022. A copy of the paper is available here.
3. Consultation on Regulatory Approach for Stablecoin-Related Activities
On October 26, 2022, MAS published the “Consultation Paper on Proposed Regulatory Approach for Stablecoin-Related Activities.” The paper sets out MAS’ policy views on the overall regulatory approach on stablecoin-related issuance and intermediation activities and highlights the key requirements that MAS seeks to impose on such activities.
MAS sees good potential for stablecoins to fulfill the role of a credible means of exchange, provided that they are backed by arrangements that give a high degree of assurance of value stability and are well regulated. To this end, MAS has proposed measures to enhance the standards of single-currency-pegged stablecoins (SCS). Some key highlights from the paper:
(a) New Regulated Activity — Stablecoin Issuance Service: MAS will introduce a new regulated activity stablecoin issuance service under the PSA. This activity will apply to a Singapore entity that performs the function of controlling the total supply of, and minting and burning of, SCS. As a start, only SCS pegged to the Singapore dollar (S$) or one of the Group of Ten (G10) currencies will be considered SCS.
Non-SCS will continue to be treated as DPT under the PSA and be subject to the existing regulatory regime for DPT services2.
(b) Licensing Requirement for Issuers of SCS: A nonbank issuer of a SCS whose value in circulation is anticipated to exceed S$5 million will have to obtain a major payment institution license under the PSA for providing stablecoin issuance service. Where such threshold is not exceeded, the SCS issuer need not obtain a license for stablecoin issuance service so as to facilitate innovation in the space, but the SCS issuer will need to obtain a standard payment institution license for DPT services if it provides regulated DPT services.
A Singapore-licensed bank that carries out stablecoin issuance service will continue to be exempted from the requirement to obtain a license under the PSA, but it will be subject to certain regulatory requirements as further explained below.
(c) Labeling: MAS will introduce a common label for SCS issued by Singapore-licensed banks and nonbank entities, which are regulated for stablecoin issuance service under the PSA, to differentiate such SCS from other stablecoins. MAS is considering three options: “regulated stablecoin,” “qualifying stablecoin,” or “securely backed stablecoin.”
MAS will also propose measures to help users distinguish between SCS, which are issued in Singapore and regulated by MAS, from other stablecoins.
(d) Regulatory Requirements: SCS issuers who are regulated for stablecoin issuance service under the PSA will be subject to the certain regulatory requirements relating to reserve asset backing, timely redemption at par, customer disclosure, and financial solvency. The extent of the application of the regulatory requirements will depend on whether the SCS issuer is a nonbank entity or a Singapore-licensed bank.
(e) SCS Issued in Multiple Jurisdictions: Currently, MAS will recognize a SCS issued in multiple jurisdictions as a MAS-regulated SCS only if there is sufficient assurance that the SCS as a whole is subject to sufficient regulatory oversight.
(f) Regulatory Treatment for Nonissuance Activities: SCS will continue to be treated as DPTs for the purposes of nonissuance activities. Entities offering SCS-related services will have to be regulated for DPT services if such services fall within the scope of DPT services as defined under the PSA.
(g) Timely Transfers of SCS: DPT service providers which offer the service of arranging for the transmission of MAS-regulated SCS will be required to complete the transfer of the SCS from one party to another in no more than three business days from the day the transfer request is received.
(h) Systemic Stablecoin Arrangements: MAS will make relevant amendments to the PSA to empower itself to supervise stablecoin arrangements as payment systems in the event MAS regards the stablecoin arrangement as systemic.
The consultation period closed on December 21, 2022. MAS will separately publish details on the regulatory requirements, legislative amendments, and transitional arrangement for consultation after finalization of the regulatory approach. A copy of the consultation paper is available here.
4. Consultation on Amendments to Restrictions on Personal Payment Accounts That Contain E-Money
On October 18, 2022, MAS issued the “Consultation Paper on Proposed Amendments to Restrictions on Personal Payment Accounts That Contain E-money.”
To facilitate greater customer convenience and innovation in the e-payments landscape, MAS has proposed to raise the following limits that currently apply to each e-wallet issued by a major payment institution (MPI) under the PSA:
(a) Stock Cap: The maximum amount of funds that can be held at any given time by an MPI will be increased from S$5,000 to S$20,000.
(b) Flow Cap: The maximum total outflow over a rolling 12-month period will be increased from S$30,000 to S$100,000.
Where a MPI provides e-money account issuance service to two or more e-money issuers under a white-label account issuance arrangement, MAS has also proposed that the MPI will not be required to aggregate the e-money in the e-wallets issued to the same payment service user under the arrangement for the purposes of applying the above caps. However, where the MPI issues two or more e-wallets to a payment service user on behalf of a single e-money issuer, the MPI will need to aggregate the e-money in the wallets for the purposes of applying the above caps.
The consultation period closed on November 25, 2022. A copy of the consultation paper is available here.
1 In the Consultation Paper on Proposed Regulatory Measures for Digital Payment Token Services issued on October 26, 2022.
2 Currently, the PSA regulates any DPT service provider that deals in DPTs or facilitates the exchange of DPTs.
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