Central bank proposes to regulate stablecoins, add rules for DPT providers

It seeks to prevent consumer harm from cryptocurrency trading.

To protect consumers against cryptocurrency risks, the Monetary Authority of Singapore (MAS) is eyeing to create regulatory measures for stablecoins and provide more rules for digital payment token (DPT) service providers 

In a form of two consultation papers, the measures will be included in the Payment Services Act.

For the DPT service providers, they are proposed to give risk disclosures to educate retail consumers on cryptocurrency trading. 

“Therefore, to reduce the risk to consumers from speculative trading in cryptocurrencies, MAS will require that DPT service providers ensure proper business conduct and adequate risk disclosure,” read the statement.

DPT service providers may also enforce “proper segregation of customers’ assets, mitigate any potential conflicts of interest which arise from the multiple roles they perform, and establish processes for complaints handling.”

MAS also sought to require DPT service providers to make sure they have high recoverability of critical systems.

Regulate stablecoins

Saying that stablecoins’ potential for the digital asset ecosystem, MAS said such mediums should still be “well-regulated and securely backed.”

The central bank is proposing to regulate issuance of stablecoins that are pegged to a single currency (SCS), where the value of SCS in circulation exceeds S$5 million. 

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, and these assets must be denominated in the same currency as the pegged currency.”

“Requirements on audit and segregation of reserves, and timely redemption at par value will also apply,” MAS said.

All SCS issued in Singapore must be to the Singapore dollar or any Group of Ten currencies.

Stablecoin issuers will also be mandated to publish a “white paper disclosing details of the SCS, including the redemption rights of stablecoin holders.”

SCS issuers should meet a base capital requirement of the higher of $1m or50% 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,” said MAS.

Singapore banks can also be SCS issuers and “no additional reserve backing and prudential requirements will apply when the SCS is issued as a tokenized form of bank liabilities given the existing rigorous capital and liquidity frameworks applied to banks.” 

For non-issuance services, DPT service providers can offer all types of stablecoins but they must “clearly label the MAS-regulated SCS to distinguish them from the unregulated ones.”

“This will help customers make informed decisions on the risks involved in using unregulated stablecoins,” read the statement.