The Monetary Authority of Singapore (MAS) published two consultation papers proposing regulatory measures to reduce the risk of consumer harm from cryptocurrency trading and to support the development of stablecoins as a credible medium of exchange in the digital asset ecosystem. These measures will be part of the Payment Services Act.
Trading in cryptocurrencies (also known as digital payment tokens or DPTs) is highly risky and not best suited for the public. While cryptocurrencies play a supporting role in the broader digital asset ecosystem, it would not be feasible to ban them. Therefore, to reduce the risk to consumers from speculative trading in cryptocurrencies, MAS will require that DPT service providers ensure proper business conduct and adequate risk disclosure.
The proposed measures will cover the following areas:
- Consumer Access: DPT service providers will be required to provide relevant risk disclosures to enable retail consumers to make informed decisions regarding cryptocurrency trading. They must also disallow the use of credit facilities and leverage by retail consumers for cryptocurrency trading.
- Business Conduct: DPT service providers will be required to implement proper segregation of customers’ assets, mitigate any potential conflicts of interest which arise from the multiple roles they perform, and establish processes for the handling of complaints.
- Technology Risks: Like other financial institutions such as banks, DPT service providers will be required to maintain high availability and recoverability of their critical systems.
Despite these regulatory measures, consumers are urged to continue to exercise utmost caution when trading in DPTs and must take responsibility for such trading. Regulations cannot protect consumers from losses arising from the inherently speculative and highly risky nature of DPT trading.
Stablecoins have the potential to be a medium of exchange, facilitating transactions in the digital asset ecosystem, provided they are well-regulated and securely backed. The current regulatory framework, which primarily addresses money laundering and terrorism financing risks, and technology and cyber risks, will be expanded to ensure that regulated stablecoins have a high degree of value stability.
The MAS will regulate the issuance of stablecoins which are pegged to a single currency (“SCS”) where the value of SCS in circulation exceeds SG$5 million. The key proposed issuer requirements relate to:
- Value Stability: SCS issuers must hold reserve assets in cash, cash equivalents or short-dated sovereign debt securities that are at least equivalent to 100% of the par value of the outstanding SCS in circulation, and these assets must be denominated in the same currency as the pegged currency. Requirements on audit and segregation of reserves, and timely redemption at par value will also apply.
- Reference Currency: All SCS issued in Singapore can be pegged only to the Singapore dollar or any Group of Ten (G10) currencies.
- Disclosures: Stablecoin issuers will be required to publish a white paper disclosing details of the SCS, including the redemption rights of stablecoin holders.
- Prudential Standards: SCS issuers must, always, meet a base capital requirement of the higher of SG$1 million or 50% of the annual operating expenses of the SCS issuer. They are also required to hold liquid assets which are valued at higher than 50% of annual operating expenses or an amount assessed by the SCS issuer to be needed to achieve recovery or an orderly wind-down.
Banks in Singapore will be allowed to issue SCS as well, and no additional reserve backing and prudential requirements will apply when the SCS is issued as a tokenised form of bank liabilities given the existing rigorous capital and liquidity frameworks applied to banks.
For non-issuance services, DPT service providers can offer all types of stablecoins if they clearly label the MAS-regulated SCS to distinguish them from the unregulated ones. This will help customers make informed decisions on the risks involved in using unregulated stablecoins.
The Deputy Managing Director (Financial Supervision) at MAS stated that the two sets of proposed measures mark the next milestone in enhancing Singapore’s regulatory approach to foster an innovative and responsible digital asset ecosystem.
She noted that regulations go together with innovation in financial services. The enhanced regulatory regime for stablecoins aims to support the development of value-adding payment use cases for stablecoins in Singapore. As the government continues to collaborate with industry players to explore the potential benefits of tokenisation and distributed ledger technology, MAS will make appropriate adjustments to its regulatory regime to address the associated risks.
