ENSURING “CREDIBLE” STABLECOINS
While extreme price volatility has ruled out cryptocurrencies as a medium of exchange for transactions in the digital asset ecosystem, stablecoins hold such potential if they are well-regulated and securely backed, according to the MAS.
A stablecoin is a crypto-asset designed to have a stable value, typically by being backed or pegged to an underlying asset such as a currency.
Currently, stablecoins and its service providers fall under the Payment Services Act and are regulated primarily for money laundering and terrorism financing, as well as technology risks. But this is “not adequate”, MAS wrote in its consultation paper, as it does not regulate the promise of the peg and any associated stabilisation mechanisms.
As a start, the regulator intends to focus its regulatory regime on single-currency pegged stablecoins (SCS) with value in circulation of more than S$5 million, and those issued in Singapore. Non-bank issuers that meet these criteria will have to obtain a major payment institution licence and be subject to new value stability, disclosure and insolvency safeguards.
Other stablecoins in the market, such as those pegged to a basket of currencies, commodities or algorithmic mechanisms will continue to be treated as DPTs, as they are seen to be “less stable”.
The proposed regulatory approach for stablecoin issuers covers these areas:
Value Stability
Issuers must hold reserve assets – in cash, cash equivalents or short-dated sovereign debt securities that are at least equivalent to 100 per cent of the par value of the outstanding SCS in circulation – to back the SCS issued.
These reserve assets will have to be denominated in the same currency as the pegged currency, and be held in separate accounts from the issuers’ own assets.
Issuers must also be audited by an external party, and ensure timely redemption at par value for holders of its SCS.
Reference Currency
All SCS issued in Singapore can be pegged only to the Singapore dollar or any Group of Ten currencies.
Disclosures
Issuers will be required to publish a white paper on their website disclosing details about the SCS, including the rights and obligations of the issuer and holders, as well as risks that can affect the stability of the SCS’ value. Such information should also be updated as needed.
Prudential Standards
Issuers must meet a base capital requirement that is either higher than S$1 million or 50 per cent of their annual operating expenses. They are also required to hold liquid assets which are valued at higher than 50 per cent of annual operating expenses or an amount assessed by the SCS issuer to be needed to achieve recovery or an orderly wind-down.
Meanwhile, banks in Singapore will be allowed to issue SCS, but they will not need to adhere to further reserve backing and prudential requirements if the SCS is issued as a tokenised form of bank liabilities.
MAS deputy managing director for financial supervision Ho Hern Shin said the enhanced regulatory regime aims to support the development of value-adding payment use cases for stablecoins in Singapore.
Taken together, the two sets of proposed measures mark the “next milestone” in enhancing Singapore’s regulatory approach for an innovative and responsible digital asset ecosystem.
“As we continue to partner 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.”
The consultation period for these proposals, during which the MAS invites comments from all interested parties, will end on Dec 21.