On August 15th, the Monetary Authority of Singapore (MAS) released the final version of its regulatory framework for stablecoins. This move positions Singapore as one of the first jurisdictions globally to incorporate stablecoins into its local regulatory system. This development has garnered significant market attention, as it sets a template for regulatory bodies worldwide to consider.
As early as December 2019, MAS introduced the Payment Services Act (PS Act), which marked its initial attempt at regulating stablecoins. Subsequently, in December 2022, MAS issued a consultation paper seeking public input on the proposed stablecoin regulatory framework. Finally, on August 15th this year, MAS finalized the regulatory framework for stablecoins.
One notable aspect of this regulatory framework that has captured market attention is the openness to the issuance targets of stablecoins. MAS permits the issuance of stablecoins pegged to a single currency, with the Singapore Dollar (SGD) as the anchor currency. Normally, a nation's currency symbolizes its sovereignty, with other nations lacking the authority to manage it. However, MAS allows stablecoins to be pegged to currencies of other countries, a significant breakthrough. This showcases MAS's openness and innovation, taking into consideration the circumstances of G10 countries and engaging in communication with various nations.
Furthermore, there have been significant adjustments in terms of issuing entities. MAS classifies stablecoin issuers into two categories: banks and non-banks. For non-bank issuers, MAS requires stablecoins with a circulation exceeding 5 million SGD to fall under the stablecoin regulatory framework, subject to applying for a Major Payment Institution (MPI) license under the PS Act. Otherwise, they fall under the PS Act's Digital Payment Token (DPT) provisions and are not within the stablecoin regulatory scope. As for banks, while MAS initially intended to include tokenized deposits under stablecoins, due to substantial differences in asset nature, this was excluded. Thus, banks must issue stablecoins backed by 100% assets, but notably, they do not need to apply for an MPI license. MAS's explanation is that existing banking legislation already mandates adherence to relevant standards.
Regarding asset composition, MAS mandates that reserve funds may only be invested in cash, cash equivalents, and bonds with a residual maturity of no more than three months. Detailed qualifications for the issuing entity's assets are specified: either government/central bank-issued legal tender or those rated AA- or above by international agencies. It's important to note that MAS imposes restrictive interpretation on cash equivalents, which primarily encompass readily liquidable bank deposits, checks, and drafts, excluding money market funds. Hence, stablecoins similar to USDC, which allocate 90% of assets to money market funds, or even stablecoins like USDT investing in commercial paper, do not comply with MAS regulatory requirements.
In terms of fund custody, MAS mandates that the issuer establish a trust and create segregated accounts to differentiate between proprietary assets and reserve funds. Qualifications for custodians are also clearly outlined: they must either be financial institutions with custody service licenses in Singapore or overseas institutions with a branch in Singapore and a credit rating not lower than A-. Thus, stablecoin issuers seeking to come under the MAS regulatory framework in the future must collaborate with a Singaporean local financial institution or one with a Singapore branch.
In terms of day-to-day management, MAS requires that the daily market value of reserves exceed 100% of the Stablecoin in Circulation Supply (SCS). During redemption, it must be redeemed at face value and within a redemption period of no more than 5 days. Monthly audit reports must also be published on the official website. MAS stipulates that the capital of stablecoin issuers must not be less than 1 million SGD or 50% of the annual operating expenses (OPEX).
In summary, the introduction of Singapore's stablecoin regulatory framework holds significant influence over the compliant development of the global stablecoin industry, setting an example for other countries. MAS demonstrates a degree of openness and innovation while considering G10 countries' situations and fostering international dialogue. This regulatory framework provides detailed provisions for stablecoin issuers, asset composition, fund custody, and day-to-day management, offering a reference standard and template for the future global stablecoin industry.