The Monetary Authority of Singapore (MAS) is seeking feedback from the public regarding the proposed safeguards to reduce the risk of consumer harm from cryptocurrency trading as well as to support the development of stablecoins as a credible medium of exchange in the digital asset ecosystem.
In a statement, the MAS says an outright ban will not be feasible as cryptocurrencies or digital payment tokens (DPTs) play a supporting role in the broader digital asset ecosystem. To reduce the risk of consumers from speculative trading in cryptocurrencies, the MAS will require DPT service providers (DPTSPs) to ensure proper business conduct and adequate risk disclosure.
The proposed measures cover three broad areas — consumer access, business conduct, and technology risks.
For consumer access, DPTSPs will be required to provide relevant risk disclosures to enable retail consumers to make informed decisions regarding crypto trading. They must also disallow the use of credit facilities and leverage by retail consumers for crypto trading.
DPTSPs will also be required to implement proper segregation of customers’ assets, mitigate any potential conflicts of interest which arise from the multiple roles they perform, as well as establish processes for complaints handling.
Similar to other financial institutions such as banks, DPTSPs will be required to maintain high availability and recoverability of their critical systems.
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“Notwithstanding these regulatory measures, consumers must 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,” the regulator says.
Separately, the MAS acknowledges that stablecoins have the potential to be a medium of exchange to facilitate 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.
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The MAS will regulate the issuance of stablecoins which are pegged to a single currency (SCS) where the value of SCS in circulation exceeds $5 million. The key proposed issuer requirements relate to value stability, reference currency, disclosures and prudential standards.
For instance, 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. These assets must be denominated in the same currency as the pegged currency. All SCS issued in Singapore can be pegged only to the Singapore dollar or any Group of Ten (G10) currencies.
Aside from a requirement to publish a white paper disclosing the details of the SCS, the issuers must, at all times, meet a base capital requirement of the higher of $1 million or 50% of annual operating expenses of the SCS issuer.
They are also required to hold liquid assets which are valued at higher of 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 also be allowed to issue SCS. 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, DPTSPs can offer all types of stablecoins provided that they clearly label the MAS-regulated SCS to distinguish them from the unregulated ones.
MAS deputy managing director (financial supervision) Ho Hern Shin says 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.
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“Regulations go hand-in-hand 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 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 MAS invites interested parties to submit their comments on the two separate public consultation paper proposals by Dec 21.
