16 November 2022

Monetary Authority of Singapore (MAS) consults on regulation of stablecoin issuers

On 26 October 2022, MAS published a consultation paper on its proposed introduction of “Stablecoin Issuance Service” as a regulated activity under the Payment Services Act 2019 (“PSA”) to maintain a high degree of value stability in single-currency pegged stablecoins (“SCS”). The public consultation will close on 21 December 2022. To access the consultation paper, please click here.

Scope: MAS proposes to regulate entities based in Singapore, performing the function of controlling the total supply of, minting, and burning of SCS as a provider of a “Stablecoin Issuance Service” (“SCS Issuers”) under the PSA as follows:

  1. Non-bank entities: where the SCS in circulation exceeds or is anticipated to exceed S$5 million, a major payment institution licence is required for SCS issuance. If the threshold is not met, the entity will not be subject to regulation as an SCS Issuer.
  2. Banks: Banks that issue SCS by tokenising liabilities of the bank will not be regulated as an SCS Issuer (“Bank Type A”). If a bank issues SCS backed by reserve asset that are segregated from the bank’s assets, the bank will be subject to the same regulatory regime as non-bank SCS Issuers (“Bank Type B”).

Label: MAS proposes the introduction of a common label for MAS-regulated SCS to help users identify SCS which are regulated and hence give greater assurance of their stability.

Pegged to Group of Ten (G10) currencies: As a start, MAS proposes to only allow the issuance of SCS that are pegged to the Singapore dollar or the G10 currencies.

Requirements imposed on SCS Issuers: Banks in Bank Type A are only subject to requirements relating to timely redemption and disclosure, while banks in Bank Type B are subject to all requirements except for prudential requirements. All other regulated SCS Issuers are to be subject to the following:

  1. Reserve assets: reserve assets equivalent to at least 100% of the par value of the SCS which meet the prescribed criteria must be held in segregated accounts with licensed custodial service providers in Singapore;
  2. Timely redemption: to disclose that SCS holders have a right to redeem SCS for the pegged currency at par value at any time. Par value should be returned to SCS holders no later than five business days from the date of the request;
  3. Disclosure: a white paper must be published, disclosing the SCS’ description, rights and obligations of the SCS Issuer and SCS holders, risks that can affect the stability of the SCS value and the ability of the SCS Issuer to fulfil its obligations;
  4. Prudential: (i) base capital of S$1 million or 50% of annual operating expenses; (ii) to hold at all times liquid assets valued at higher of 50% of annual operating expenses or an amount needed to achieve recovery or an orderly wind-down; and (iii) not to undertake other activities that introduce additional risks to itself.

SCS issued in multiple jurisdictions: MAS is only prepared to recognise SCS with multi-jurisdiction issuance if there is sufficient assurance that the SCS is subject to sufficient regulatory oversight. Otherwise, the issuer would only qualify for a licence to offer digital payment token (“DPT”) services.

SCS intermediaries: Entities offering SCS-related services (excluding SCS issuance) will be regulated if the service falls within the scope of DPT services under the PSA. Such entities (i) have to clearly label whether the SCS is MAS-regulated; and (ii) must comply with MAS Notice PSN08 on Disclosure and Communications for non-MAS regulated SCS. Providers of SCS transfer services must complete transfers in no more than three business days from the date of the transfer request.

Systemic stablecoin arrangements: MAS proposes to supervise operations to facilitate transfers of SCS as payment systems and designate such arrangements as designated payment systems under the PSA. Such arrangements will also be designated under the Payment and Settlement Systems (Finality and Netting) Act 2002 to provide finality to transactions effected.

IMPORTANT NOTICE: This memorandum is only intended as a guide and does not purport to be an exhaustive or conclusive discussion of the matters set out herein and should not be relied on as a substitute for definitive legal advice. Reference should always be made to the applicable statutes, the relevant subsidiary legislations and other applicable guidelines. This memorandum is not to be transmitted to any other person nor is it to be relied upon by any other person or for any other purpose or quoted or referred to in any public document or filed with any governmental or other authorities without our consent in writing. This memorandum is limited to the laws of Singapore. In issuing this memorandum, we do not assume any obligation to notify or inform you of any developments subsequent to its date that might render its contents untrue or inaccurate in whole or in part at such later time. If you would like to discuss the implications of these legal developments on your business or obtain advice, please do not hesitate to approach your usual contact at Insights Law LLC or you may direct the inquiry to our key contacts stated above.