Early Mover: Singapore Finalises Regulatory Framework For Stablecoins

August 17, 2023
Singapore is moving towards becoming one of the first jurisdictions to regulate stablecoins, after the central bank finalised a regulatory framework that could soon become law.

Singapore is moving towards becoming one of the first jurisdictions to regulate stablecoins, after the central bank finalised a regulatory framework that could soon become law.

The Monetary Authority of Singapore (MAS) has published a final version of a proposed regulatory framework for stablecoins in an effort to ensure that asset-referenced tokens are both liquid and secure.

Under the proposed framework, stablecoins pegged to the Singapore dollar or any other G10 currency will fall within the scope of the regulations.

The stablecoin must be a single-currency stablecoin, i.e. no baskets of currencies allowed, and must also be issued from within Singapore.

To issue a regulated stablecoin in Singapore, issuers must fulfil certain key requirements related to stability, capital, redemption and disclosure.

Reserve assets must be held in low-risk, highly liquid assets, and must be valued at 100 percent or more of all outstanding tokens at all times.

In addition, reserve assets must be held in segregated accounts managed by eligible custodians. Custodians can be located either within Singapore or overseas, but must have a minimum credit rating of “A-”.

Firms must have a minimum base capital of S$1m ($734,000) to issue stablecoins in Singapore, and issuers must demonstrate that they have a minimum level of liquid assets to meet operating expenses.

Issuers must be able to offer a direct legal claim for redemption at par value, and all redemption requests must be met within five business days of receipt. Redemption conditions must also be “reasonable” and disclosed “upfront”.

Further disclosures are required regarding the technical specifications of the stablecoin, its “value-stabilising mechanism”, the rights of stablecoin holders and the auditing of reserve assets.

Penalties for non-compliance

Issuers that meet these requirements at launch, but fail to comply at a later date, may be required to pursue an “orderly wind-down” of business.

Only issuers that fulfil all the requirements under the framework may apply for their stablecoin to be recognised and labelled as a “MAS-regulated stablecoin”.

As noted by the MAS, this label will enable users to readily distinguish regulated stablecoins from other digital payment tokens.

Any person or organisation that misrepresents a token as an “MAS-regulated stablecoin” may be subject to a fine or imprisonment, and may be placed on the MAS Investor Alert List.

Ho Hern Shin, deputy managing director of financial supervision at the MAS, said the framework aims to establish stablecoins as a “credible digital medium of exchange” and a bridge between fiat and digital currencies.

“We encourage issuers who would like their stablecoins recognised as ‘MAS regulated stablecoins’ to make early preparations for compliance,” she said.

The MAS added that the regulatory framework takes into account the feedback it received following a consultation published in October last year.

A global trend

The finalisation of the framework means that Singapore is likely to become one of the first jurisdictions to introduce dedicated rules for stablecoin issuers and custodians.

In June, the UK passed a law that will see stablecoins come under the remit of “regulated activities”, although the specific provisions of the law have yet to be decided.

Hong Kong has also conducted a public consultation on stablecoins that could lead to similar regulations being introduced next year.

And last June, as covered by VIXIO, Japan became the first jurisdiction in the world to pass a stablecoin law.

Will issuers flock to Singapore?

The passage of the framework is likely to put Singapore on the map as a go-to destination for stablecoin issuers.

The framework is further strengthened by the fact that it excludes “multi-jurisdictional issuance” from its scope.

In other words, if a stablecoin wants to be recognised as a “MAS-regulated stablecoin”, it must be issued solely from within Singapore.

The MAS considered several approaches to include non-Singapore-issued stablecoins within the framework, but found all to be “practically difficult”.

These options included recognising stablecoins that are issued in jurisdictions with “regulatory equivalence”, or imposing technical standards that could show where each token was issued.

Although neither of these options was pursued at this time, the MAS added that it is not entirely opposed to pursuing these options in future.

“The MAS will continue to monitor regulatory and technical developments relating to stablecoins, and consider formal regulatory cooperation mechanisms with other jurisdictions as stablecoin regulations mature over time,” it said.

One major stablecoin issuer that is well positioned for the framework to become law is US firm Circle, issuer of USD Coin or USDC.

In June, Circle obtained a licence as a Major Payment Institution (MPI) in Singapore.

The licence allows Circle’s Singapore subsidiary to offer digital payment token services, alongside cross-border money transfer services and domestic money transfer services.

Jeremy Allaire, co-founder and CEO of Circle, said that Singapore is “integral” to Circle’s global expansion plans.

“We are honoured to receive the MPI licence from MAS, and we remain committed to being a part of Singapore’s dynamic economy by advancing the future of financial technology innovations in the city-state,” he said.

In total, it took Circle little more than a year to receive the MPI licence, after it first established a regional hub in Singapore in May 2022.

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