MAS Charts the Next Phase of Stablecoin Regulation in Singapore

Topic

Description

(1) Stablecoins issued and regulated in Singapore

General Framework

• Stablecoins issued in Singapore that meet the applicable requirements below may be held out as “MAS-regulated stablecoins.”

Licensing Requirements

• A new license class, “stablecoin issuance license,” will be introduced in the PSA for MAS-regulated stablecoin issuers.
• Only licensees may hold themselves out as the issuer of a MAS-regulated stablecoin.

Permitted Business Activities

• Issuer may only conduct activities relating to the issuance of MAS-regulated stablecoins.
• No separate payment service license is required where the issuer also undertakes activities falling within the scope of DPT service under the PSA that are incidental to the issuer’s business of issuing MAS-regulated stablecoins.
• Issuer may not conduct other unrelated activities, including issuing non-MAS-regulated stablecoins.

Prudential Requirements

• A separate pool of reserve assets at least equal to the par value of outstanding MAS-regulated stablecoins in circulation must be maintained.
• Holders should have the right to redeem the MAS-regulated stablecoin on a par value basis.
• Redemption requests should be fulfilled within a timeframe to be specified by MAS.

Additional Requirements Under Consultation:

• Whether issuers should be prohibited from paying any interest or other benefit that is directly or indirectly attributable to the holding of a MAS-regulated stablecoin.
• Whether issuers should be restricted from using monies received from customers and interest earned from it for on-lending or material financing of its business.
• Whether to require a minimum proportion of reserve assets to be held in cash or bank deposits.
• Whether a cap on individual holdings and aggregate issuance size should be placed on issuers.

Consumer Protection Requirements

• Safeguarding of funds
  • Funds received by issuer for purchase of MAS-regulated stablecoins are to be immediately safeguarded until the intended holder has received the stablecoins.
  • Funds are also to be safeguarded where money is due to be paid for redemptions but has not been received by the holder.
• Issuers exiting the MAS-SCS framework
  •  Issuer is to be barred from conducting all issuance business (including non-MAS-regulated stablecoins) or alternatively to be wound down.
  • Issuer is to be prohibited from disposing reserve assets for purposes other than fulfilling redemption requests until MAS is reasonably satisfied that there are no outstanding requests.

Risk Management Requirements

• Issuer to have a framework to address all material risks, including operational risks, compliance risk, and financial stability risks.
• Liquidity risk management
  • Issuer to implement liquidity risk management framework to address extreme but plausible stress scenarios.
  • Stress testing to be conducted at least quarterly and shared with MAS.
  • Additional capital, liquidity, or reserve buffer requirements may be imposed by MAS if critical vulnerabilities revealed.
• Recovery and orderly wind-down
  • Issuer to put in place recovery and orderly wind-down plans.
  • Plans to be shared with MAS on an annual basis.
  • The financial resources assessed to achieve recovery or orderly wind-down must be independently verified.
• Anti-money laundering and countering the financing of terrorism (AML / CFT)
  •  Issuer to be subject to AML / CFT requirements, including customer due diligence, screening, and travel rule requirements.
  • Issuer to have technical capabilities to trace, freeze, or burn the issued stablecoins if found to be used for illicit activities.
  • MAS is considering whether to (i) require verified identification for every holder of MAS-regulated stablecoins, (ii) restrict use of unhosted wallets to hold stablecoins, and (iii) require ongoing monitoring of stablecoins in circulation.

(2) Stablecoins issued in multiple jurisdictions, including Singapore, and regulated in Singapore

General Framework

• Fungible stablecoins concurrently issued by a Singapore-incorporated issuer and foreign-incorporated affiliate issuer and both sharing the same reserve pool may be admitted within the MAS-SCS framework and held out as MAS-regulated stablecoins provided that the applicable requirements are met.

Licensing Requirement

• The Singapore issuer must hold a stablecoin issuance license and be subject to the requirements applicable to MAS-regulated stablecoins as set out above.
• The foreign issuer must be supervised under a stablecoin regulatory regime that MAS deems substantively equivalent to the MAS-SCS framework and where there is a bilateral information-sharing agreement between MAS and the foreign supervisory authority.

Reserve Assets Requirement

• Composition of reserve assets held by all issuers should meet the stricter of either the MAS-SCS framework or that imposed by the supervisory authority of the foreign issuer.
• Value of reserve assets held by all issuers must be equivalent to at least 100% of the par value of outstanding stablecoins in circulation (including those held by the issuers) at all times. MAS may require additional reserve assets to be held in excess by the Singapore issuer if additional risks need to be mitigated.
• Reserve assets should be denominated in currency of the stablecoin peg.
• Reserve assets must be held in segregated accounts on trust and be held by financial institutions licensed for custodial services by a competent authority.
• Amount of reserve assets held by the Singapore issuer relative to the foreign issuer must be risk-proportionate. Any reserve rebalancing arrangements or stablecoin attribution models must be approved by MAS prior to issuance, with daily records to be kept and submitted to MAS on a monthly basis.

Terms of Issuance and Redemption

• The rights of all stablecoin holders should be comparable across all issuers.
• Where there are differences between the requirements of the MAS-SCS framework and those of the other jurisdiction(s), the issuer should meet the stricter of the regulatory requirements.
• Redemption fees should be reasonable and not prohibitive, and comparable across all jurisdictions.
• Redemption timelines should be expeditious, and issuers should endeavor to provide the same timelines across all issuers.

Recovery and Orderly Wind-Up Requirements

• Recovery plan
  • Plan must explicitly cover how recovery is to be implemented across all issuers to ensure effective coordination across various scenarios.
  • If only one issuer is in distress, any contagion effect on issuers in other jurisdictions should be adequately mitigated and minimized.
• Exiting the MAS-SCS framework
  •  The Singapore issuer must ensure that there are no outstanding redemption requests from existing holders of the MAS-regulated stablecoins prior to exiting the MAS-SCS framework.
  • MAS is considering whether to require the Singapore issuer to wind-up.

(3) Stablecoins issued and regulated outside Singapore

General Framework

• MAS may recognize a limited number of stablecoins issued outside Singapore and regulated outside Singapore on a case-by-case basis where MAS is satisfied that they are well regulated for value stability on an ongoing basis. Such stablecoins may be held out as “MAS-recognized stablecoins.”

Requirements for Recognition

• The foreign issuer and its stablecoin should be regulated under a foreign regulatory framework deemed to be substantively equivalent to the MAS-SCS framework.
• There should be supervisory cooperation and information sharing agreements between MAS and counterpart competent authorities.

(4) Unregulated stablecoins

General Framework

• Stablecoins that do not fall within any of the above three categories will not be within the MAS-SCS framework.
• Such stablecoins will continue to fall within the scope of DPTs under the PSA. Persons providing intermediation services will continue to be subject to the current PSA licensing requirement for DPT services.

Additional Retail Protections

• Requirements for licensed DPT service providers offering non-MAS regulated stablecoins:
  • Enhanced disclosures to be provided to retail customers on the reserve assets backing such tokens.
  • Clear risk warnings to be provided to retail customers that the DPTs are not regulated by the MAS for value stability and that such tokens may not maintain their promised value.
• Licensed DPT service providers to be restricted from marketing non-MAS-regulated stablecoins to their retail customers using the term “stablecoin.”