The Financial Authority of Singapore introduced a brand new framework that seeks to make sure worth stability for stablecoins regulated in Singapore.
On 15 August 2023, the Financial Authority of Singapore (MAS), Singapore’s main regulator for banks and cost providers, introduced its new stablecoin regulatory framework. The brand new framework introduces licensing and different necessities for stablecoin issuers with operations in Singapore.
This framework follows a session paper in October 2022, on the MAS’ proposed method to the regulation of stablecoin issuers and intermediaries, and a session paper on the scope of e-money and digital cost tokens in December 2019, by which the MAS thought-about the necessity to evaluation its regulatory method to accommodate stablecoins with the potential to turn out to be extra extensively used as cost devices. These publications, along with the Hong Kong Financial Authority’s dialogue paper on its proposed method to the regulation of stablecoins, (see Latham’s weblog put up), point out that Asian regulators proceed to contemplate applicable guardrails for cryptocurrencies in mild of serious shopper curiosity.
How Are Stablecoins Presently Regulated in Singapore?
Stablecoins are blockchain-based tokens that try to keep up a steady worth by reference to an underlying fiat forex or a basket of belongings. Using stablecoins has risen sharply from lower than US$3 billion in market capitalisation at first of 2019 to roughly US$150 billion in December 2021. Stablecoins are necessary to the cryptoasset ecosystem as a result of they operate as an middleman token, which can be utilized between cryptocurrency intermediaries and permits customers to keep away from cashing out their investments right into a checking account.
One of many MAS’ main capabilities is regulating the cost providers sector in Singapore, and it has current powers below the Cost Providers Act 2019 (PS Act) to control cost providers suppliers. Presently, stablecoins could also be handled as digital cost tokens (DPTs) below the PS Act in the event that they fulfil sure necessities. Entities that deal in or facilitate the change of such stablecoins would fall throughout the scope of the PS Act, and are regulated primarily for cash laundering, terrorism financing, and expertise dangers. These service suppliers are additionally required to offer danger warning disclosures to clients.
MAS’ New Regulatory Strategy to Stablecoin Issuers
The MAS notes that the present regulatory therapy of stablecoins below the PS Act just isn’t ample because it lacks laws on stabilisation mechanisms or measures to make sure that stablecoins keep a excessive diploma of worth stability.
To handle this concern, the MAS will introduce a brand new regulated exercise of “Stablecoin Issuance Service” below the PS Act. The brand new licensable exercise would regulate the issuance of single-currency pegged stablecoins (SCS) in Singapore which meet the next necessities:
- the SCS is pegged to the Singapore greenback or Group of Ten (G10) currencies; and
- the SCS in circulation exceeds or is anticipated to exceed SGD$5 million in worth.
An SCS which meets these necessities can be labelled a “MAS-regulated stablecoin”, and solely SCS issuers regulated below the brand new framework can be permitted to make use of this label.
Usually, a Singapore-based entity that performs the operate of controlling the overall provide of, and minting and burning of MAS-regulated stablecoins, would fall throughout the scope of this new class and would want to acquire a significant cost establishment (MPI) licence below the PS Act. Banks in Singapore can be exempted from this requirement to acquire a licence below the PS Act.
Apart from licensing, the MAS will impose necessities on issuers of MAS-regulated stablecoins, with the intention to keep a excessive diploma of worth stability of the SCS. These necessities embody the next:
1. Reserve Asset Backing
Issuers can be required to carry reserve belongings equal to at the very least 100% of the par worth of the excellent SCS in circulation always (together with these held by the issuer), in a portfolio of low-risk, extremely liquid belongings. Issuers can be required to keep up a sturdy and resilient danger administration coverage for his or her reserve belongings, masking features corresponding to credit score, liquidity, and focus danger.
Reserve belongings have to be held in segregated accounts separate from the issuer’s different belongings, and held within the custody of a licensed monetary establishment in Singapore, until the issuer itself is a licensed financial institution.
Moreover, SCS issuers should receive impartial attestation, corresponding to by exterior audit corporations, that the reserve belongings meet the MAS’ necessities on a month-to-month foundation. This attestation, together with the proportion worth of the reserve belongings in extra of the par worth of excellent SCS in circulation, have to be revealed on the issuer’s web site and submitted to the MAS. SCS issuers should additionally appoint an exterior auditor to conduct an annual audit of their reserve belongings and submit the report back to the MAS.
2. Base Capital / Solvency Necessities
Beneath the brand new framework, SCS issuers can be required to keep up a base capital always which is the upper of: (i) SGD$1 million; or (ii) 50% of their annual working bills.
Moreover, such issuers can be required to carry always liquid belongings valued on the greater of: (i) 50% of annual working bills; or (ii) an quantity that the SCS issuer decided is critical to attain restoration or an orderly wind-down. The latter quantity can be topic to impartial audits on at the very least an annual foundation.
3. Enterprise Restrictions
An SCS issuer shouldn’t undertake actions that introduce further dangers, corresponding to lending providers, dealing, or fund administration providers. Such actions can nonetheless be performed from different associated entities if the SCS issuer doesn’t maintain a stake within the associated entity.
4. Disclosure / Redemption Necessities
The MAS would require issuers of MAS-regulated stablecoins to publish and keep a white paper on their company web sites, to reveal data corresponding to: (i) the outline of the SCS; (ii) the rights and obligations of the SCS issuer and SCS holders; and (iii) the dangers that may have an effect on the soundness of the SCS worth and talent of the SCS issuer to fulfil its obligations. As a matter of fine follow, the white paper ought to be accompanied by a factsheet summarising the important thing data related to the SCS holders.
An SCS issuer should specify and disclose that every one the holders of its SCS would have a direct authorized proper to redeem the SCS for the pegged forex at par worth (or some other currencies of equal worth), and that redemption requests may be made at any time with the SCS issuer. Any situations that the SCS issuer needs to impose for redemptions, corresponding to charges and minimal redemption quantity, have to be cheap. Such situations should even be clearly disclosed on the SCS issuer’s company web site and some other communication channels with the general public relating to the SCS. An SCS issuer ought to return the par worth of the SCS to the SCS holder inside 5 enterprise days from receiving a authentic redemption request.
5. No Multi-jurisdictional Issuance
Following the general public session, the MAS has determined that it will not permit multi-jurisdictional issuance for stablecoins regulated below the brand new framework. SCS issuers can be required to problem solely out of Singapore if their SCS is to be recognised as a “MAS-regulated stablecoin”.
Apart from these necessities, the MAS will additional amend the PS Act to empower it to oversee stablecoin preparations. These embody: (i) the ability to gather data on stablecoin preparations from related individuals in Singapore, corresponding to SCS intermediaries and validators of transactions; and (ii) bringing “systemic” stablecoin preparations (i.e., stablecoins that are deemed important sufficient such that disruptions to the preparations may disrupt or have an effect on public confidence in Singapore’s monetary system) throughout the scope of the PS Act’s designated cost system framework.
Stakeholders ought to take into account the necessities of the brand new stablecoin framework and the potential influence on operations in Singapore.
The MAS has famous beforehand that additional particulars on the regulatory necessities, legislative amendments, and transitional preparations shall be individually revealed for session after it has finalised the regulatory method to stablecoins.
Latham & Watkins will proceed to analyse and report on the brand new stablecoin regulatory framework.
 The G10 currencies are the Australian greenback, British pound sterling, Canadian greenback, euro, Japanese yen, New Zealand greenback, Norwegian krone, Swedish krona, Swiss franc and the US greenback.