Monetary Authority of Singapore finalizes regulatory framework for stablecoins

The Monetary Authority of Singapore (MAS), the city-state’s central bank and financial regulatory authority, has announced a new regulatory framework for stablecoins that seeks to “ensure a high degree of value stability for stablecoins regulated in Singapore.”

The rules will apply to any single-currency stablecoins (SCS) pegged to the Singapore dollar or any G10 currencies issued in Singapore, notably the euro, U.S. dollar, and British pound. This would include Tether (USDT) and USD Coin (USDC), the world’s largest stablecoins by market cap.

Stablecoins are a form of digital asset, in theory, designed to maintain a constant value against a fiat currency—hence ‘stable.’ To achieve this, many claim to be backed by a reserve of real-world assets, such as cash or government bonds, usually in the fiat currency to which they are pegged.

“MAS’ stablecoin regulatory framework aims to facilitate the use of stablecoins as a credible digital medium of exchange, and as a bridge between the fiat and digital asset ecosystems. We encourage SCS issuers who would like their stablecoins recognised as “MAS regulated stablecoins” to make early preparations for compliance,” said Ho Hern Shin, Deputy Managing Director (Financial Supervision) at MAS.

The new stablecoin regime takes into account feedback from an October 2022 public consultation on the overall regulatory approach for stablecoin issuance and intermediation activities.

“MAS has carefully considered the feedback received and has incorporated them where appropriate,” a response to stablecoin consultation document read. “This paper represents MAS’ finalised regulatory approach towards stablecoins in Singapore.”

Tuesday’s announcement outlined some of the key features of the new stablecoin framework: 

• Reserve assets will be subject to their composition, valuation and custody requirements, “to give a high degree of assurance of value stability.”
• Issuers must maintain minimum base capital and liquid assets to reduce the risk of insolvency and enable an orderly wind-down of business if necessary.
• Issuers must return the par value of the stablecoins to holders within five business days of a redemption request.
• Issuers must provide “appropriate disclosures” to users, including information on the stablecoin’s value stabilizing mechanism and the audit results of reserve assets.

MAS also noted that only stablecoin issuers who fulfill all requirements under the framework can apply to be a recognized “MAS-regulated stablecoin.” A label that “will enable users to readily distinguish MAS-regulated stablecoins from other digital payment tokens,” including stablecoins not subject to MAS’ stablecoin regulatory framework.

The stablecoin market is currently valued at around $125 billion, with USDT and USDC accounting for almost 90% of the market cap value. Stablecoins have made themselves indispensable to nearly every digital asset exchange as a tool for integrating new money, managing and growing liquidity, leveraged trading, and pricing digital assets.

Despite their prominence in the digital asset space, stablecoins remain primarily unregulated worldwide, which has led to incidents where the supposedly ‘stable’ and fully-backed assets were revealed not to be so.

One such well-publicized scandal involved Tether, which was sued in 2019, along with its sister company Bitfinex, by New York Attorney General Leticia James, who suggested Tether was printing unbacked money to cover up an $850 million loss suffered by Bitfinex. Tether and Bitfinex eventually settled, but the settlement agreement noted that for periods Tether LTD didn’t have the reserves to back the USDT in circulation.

To protect against the oversized influence of the stablecoin sector and the knock-on effects illicit activities and poor management in the space could have, countries are slowly starting to catch up with their regulatory regime to account for stablecoins.

The EU signed its landmark Market in Crypto Assets (MiCA) bill into law in May, which brings with it new stablecoin rules, including proof-of-funds requirements; and this month, the U.K. progressed plans for its systemic stablecoin regime, outlining, amongst other things, which regulatory authorities will oversee the assets.

As of Tuesday, Singapore has also joined this regulatory bandwagon, and the reaction has been positive so far.

“Years of thought and consideration went into this final framework,” said Chris Perkins, President and Managing Partner at CoinFund and member of the Commodities Futures Trading Commission’s Global Markets Advisory Committee and its Digital Asset Subcommittee. “This is an important step forward for Singapore as it seeks to position itself as the crypto hub of Asia.”

In a statement to CoinGeek, Perkins praised the incoming regulatory regime, saying, “It provides standards for value stability, redemptions, capital and disclosures…The stakes are high, and jurisdictions that get their policies right stand to benefit; those who do not will be left behind.”

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