MAS streamlines the approach towards a framework for stablecoins
Stablecoins, a rising category of digital payment tokens (DPTs), are set to reshape payment methods.
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Since the first 2019 consultation paper, developments within the digital asset space have pointed towards a regulatory treatment of stablecoins, proving the need for a standalone framework.
On 26 October 2022, MAS released a subsequent consultation paper on the impending regulatory norms to be associated with stablecoin issuance and their intermediary functions. It also received feedback from stakeholders.
On 15 August 2023, MAS responded to the feedback and finalised its first regulatory framework for stablecoins in Singapore.
Here are eight crucial aspects you should know:
The SCS Framework
MAS will regulate single-currency stablecoins (SCS) pegged to either the Singapore dollar or the Group of Ten currencies when issued in Singapore. The G10 includes the Australian Dollar, British Pound Sterling, Canadian Dollar, Euro, Japanese Yen, New Zealand Dollar, Norwegian Krone, Swedish Krona, Swiss Franc and the United States Dollar.
This approach, known as the “SCS framework,” leaves non-SCS under the existing Payment Services Act 2019 (PS Act) jurisdiction. MAS is open to feedback on expanding its oversight to SCS outside Singapore.
Respondents largely support the proposed regulatory scope but calls for expansion persist.
Conditions for Issuers
Non-bank SCS issuers with a circulation below S$5 million will be exempt from SCS framework mandates. Issuers expecting their circulation to go past this threshold must apply for the Major Payment Institution (MPI) licence.
Meanwhile, bank SCS issuers will see differences between asset-backed stablecoins and tokenized bank liabilities acknowledged by MAS.
‘MAS-regulated Stablecoin’ Label
Respondents during the consultation prefer a unique label for SCS governed by the framework. The term “MAS-regulated stablecoin” will be reserved for these. It will also improve credibility.
Redeeming Stablecoins to Fiat
SCS can be redeemed for fiat currency within five business days from the date of a legitimate redemption request., provided reasonable redemption conditions are met.
SCS issuers must maintain a low-risk reserve asset portfolio and ensure the valuation remains at or above 100% of circulating SCS.
Transparency and Trust
MAS emphasised segregated accounts for reserve assets within licensed financial institutions. Overseas-based custodians are permitted if they have a minimum credit score of “A-.”
Independent audits and monthly reviews will also be done to enhance transparency.
Solvency and Business Focus
Independent audits will be done to assess recovery strategies. Additionally, SCS issuers must maintain a minimum base capital of S$1 million, focusing primarily on SCS issuance, and avoiding ventures like fund management or lending services which both come with risks.
While discouraging multi-jurisdictional issuance initially, MAS envisions future collaborations with other jurisdictions as the stablecoin landscape matures.
MAS recognizes the importance of monitoring the influence of DPTs and SCS on financial stability and monetary sovereignty. The evolving frameworks aim to ensure a stable financial ecosystem in Singapore.
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