On 15 August 2023, the Monetary Authority of Singapore (MAS) unveiled its finalised regulatory approach towards stablecoin-related activities. The regulatory regime, which MAS refers to as the SCS framework, is largely consistent with MAS’s proposals in its October 2022 consultation paper (see our article on that consultation paper).

Overview of the SCS Framework

The new SCS framework will regulate single currency stablecoins (SCS) pegged to the Singapore dollar or Group of Ten currencies (i.e., Australian Dollar, British Pound Sterling, Canadian Dollar, Euro, Japanese Yen, New Zealand Dollar, Norwegian Krone, Swedish Krona, Swiss Franc and US Dollar) that are issued in Singapore.  Other types of stablecoins will be regulated as digital payment tokens (DPTs) under the existing framework in the Payment Services Act 2019 (PS Act). Only stablecoins regulated under the SCS framework will and can be labelled as “MAS-regulated stablecoins” (MRS), to distinguish them from other types of digital tokens.

The SCS framework will also introduce a new “Stablecoin Issuance Service” as an additional payment service under the PS Act to regulate MRS issuers’ activities, including custody of issued MRS and management of reserve assets backing MRS.  

The SCS framework will not apply to non-bank MRS issuers with less than S$5 million MRS in circulation.  However, MRS issuers that anticipate or intend its total MRS circulation to exceed S$5 million or would like to be regulated under the SCS framework may apply for a Major Payment Institution licence to conduct a Stablecoin Issuance Service.

Requirements Imposed on MAS-regulated Stablecoins

Reserve Assets Requirements

MRS issuers will be required to maintain a portfolio of reserve assets with a valuation that is at all times at least 100% of their outstanding MRS in circulation.

The reserve assets must be:

• subject to a risk management policy that deals with credit, liquidity and concentration risk;
• denominated in the currency of the stablecoin peg;
• held in either cash, cash equivalents, or 3-month debt securities issued by a government or central bank of the pegged currency or organisations that are of governmental and international character with a minimum credit rating of “AA-”;
• subject to monthly independent attestations published on the issuer’s website and annual audits; and
• held in segregated accounts by MAS-licensed custodial service providers, including overseas-based custodians with a minimum credit rating of “A-” and a branch in Singapore regulated by MAS to provide custodial services.

Prudential Requirements

MAS will impose the following requirements on MRS issuers:

Because of the business restrictions above, MRS will not qualify as insured deposits under applicable Singapore law.

Timely Redemption

MRS issuers must return the par value of MRS to holders within 5 business days from the date of receipt of a legitimate redemption request.  Any redemption conditions must be reasonable and disclosed upfront.

No SCS Issued in Multiple Jurisdictions

Given the difficulty of regulating SCS issued overseas at this time, MAS will require MRS issuers to issue SCS solely out of Singapore in order to be recognised as MRS under the SCS framework.

Regulation of Non-Issuance MRS Activities

The SCS framework only applies to MRS issuers.  An entity that deals in, facilitates the exchange of or transmits MRS (“MRS Intermediary”) will be regulated as a DPT service provider under the PS Act.  As a DPT service provider, an MRS Intermediary handling MRS will be required to comply with the customer asset segregation and custody requirements that are proposed to come into effect in October 2023 (see our article on those segregation and custody requirements).  

Other Requirements

MRS issuers will be required to:

• issue a white paper providing information about the issuer, the operations of their MRS, the risks arising from the use of their MRS and rights and obligations related to their MRS (e.g., redemption); and
• comply with existing requirements on anti-money laundering/countering the financing of terrorism and technology and cyber risk standards that apply to DPT service providers.

Key Takeaway

MAS’s finalised SCS framework provides clearer guidance and certainty on the regulation of MRS issuers in Singapore, particularly their obligations as regards reserve assets, prudential requirements and redemption. As stablecoins continue to evolve in nature and potential, MAS may make further regulatory developments by adding other types of tokens in the SCS framework or permitting multi-jurisdictional issuance.  It is therefore important for MRS issuers to remain informed and updated on any regulatory changes in this area.

For More Information

OrionW regularly advises clients on FinTech matters.  For more information about the regulation of stablecoins or digital assets in Singapore, or if you have questions about this article, please contact us at fintech@orionw.com.

Disclaimer: This article is for general information only and does not constitute legal advice.