Singapore Stablecoin Regulatory Framework Released Issuers with Circulation of Over 5 Million Yuan Must Hold Equivalent Assets

Singapore releases stablecoin regulatory framework, requires issuers with circulation over 5M yuan to hold equivalent assets.

Source: Lianhe Zaobao

In the regulatory framework for stablecoins proposed by the Monetary Authority of Singapore (MAS), issuers of locally issued stablecoins pegged to a single currency must hold reserve assets equivalent to at least the circulating value of SGD 5 million, with the assets priced in the pegged currency. The issuing institution must have a minimum capital of SGD 1 million.

This is one of the requirements in the new regulatory framework announced by MAS on Tuesday, August 15. MAS conducted a public consultation on this last October and the latest framework takes into account the feedback received to ensure the value stability of regulated stablecoins in Singapore.

Stablecoins are digital tokens pegged to at least one fiat currency, aiming to maintain a stable value.

MAS stated that with proper regulation and value stability, stablecoins can serve as a trusted medium of exchange, supporting innovations such as the “on-chain” purchase and sale of digital assets.

According to MAS’ framework, stablecoins issued in Singapore can only be pegged to the Singapore Dollar or any of the G10 currencies, such as the US Dollar, British Pound, Japanese Yen, etc. The reserve assets can only include cash, cash equivalents, and three-month government bonds priced in the pegged currency. The value of the assets must not fall below the value of the issued stablecoins at any time.

Independent third party required to submit monthly asset valuation to MAS

Issuers must engage an independent third party to perform monthly asset valuation, disclose it on their website, and submit it to MAS. Additionally, an annual audit must be conducted and submitted to MAS.

MAS also requires issuers to segregate reserve assets from their own assets and have them held by licensed financial institutions providing custody services locally. After a public consultation, it was decided that reserve assets can also be held by overseas institutions with a credit rating of at least “A-” and a local branch providing custody services and being regulated by MAS.

If users wish to redeem stablecoins at face value, the issuing institution must complete the redemption within five working days.

Issuing institutions are not allowed to engage in other business activities such as investments, providing loans to other companies, lending stablecoins or other digital tokens, and engaging in digital token trading.

Compliance required to apply for recognition as a MAS-regulated stablecoin

Only stablecoin issuers who meet all the requirements of the framework can apply to MAS for recognition of their stablecoin and label it as a “MAS-regulated stablecoin.” This allows users to differentiate MAS-regulated stablecoins from other digital tokens.

Deputy Chief Executive (Financial Regulation) of the Hong Kong Monetary Authority, Howard Lee, said in a statement: “The HKMA’s regulatory framework for stablecoins aims to promote the use of stablecoins, making them a trusted digital medium of exchange and a bridge between fiat currencies and the digital asset ecosystem.”

If issuers wish to have their stablecoins recognized by the authorities, the HKMA encourages them to make compliance preparations as early as possible.

There are also stablecoins in the market that are pegged to commodities such as gold, collateralized by cryptocurrencies, and controlled by algorithms to maintain supply and price stability. These are not within the scope of the HKMA framework. Last May, TerraUSD stablecoin, which was controlled by an algorithm, suddenly collapsed, causing a major upheaval in the cryptocurrency market and resulting in significant losses for many investors.

This has attracted the attention of global regulatory agencies. Multiple countries and regions have sought consultation or issued legislative proposals, including Japan, the European Union, the United Kingdom, and Hong Kong. Hong Kong is currently seeking public opinion on stablecoins and plans to introduce a regulatory framework next year.

Regulated Stablecoins to Boost Confidence of End Users for Adoption

Xie Fuli, co-founder of the Global FinTech Academy, said in an interview with Lianhe Zaobao: “Regulated stablecoins, due to their strict requirements in capital, custody, and auditing, will boost the confidence of end users, which will gradually drive the adoption rate of stablecoins and further develop the digital asset market.”

However, he pointed out that the high requirements of the framework will only attract well-capitalized issuers, resulting in the market including both regulated and unregulated stablecoins to meet different usage scenarios.

Xie Fuli said that due to their widespread adoption globally, unregulated stablecoins will still be commonly used settlement tokens in cryptocurrency exchanges, while regulated stablecoins will be increasingly used for real-world transactions such as payment and settlement of securities, especially tokenized assets.

Liu Yuqing, President of DCS Card Centre (formerly known as Diners Club Singapore), a credit card issuer, said that they will evaluate the latest framework and make preparations to register their payment tokens as regulated stablecoins by the HKMA. The company recently issued DCS tokens (DUS) pegged to the US dollar.

Chen Qinqi, Vice President of Strategy and Policy at Circle, one of the major issuers of the stablecoin USDC, pointed out that with the potential opportunities brought by the new framework, the company is evaluating possibilities within its existing license scope.

Evy Theunis, Managing Director of Digital Assets at DBS Bank’s Financial Institutions Group, welcomed the new framework. She said that under the framework, well-capitalized and audited liquid reserve assets are held by regulated financial institutions and can be redeemed reliably at any time, which gives issuers and users confidence in stablecoins as a reliable medium of exchange connecting fiat assets and digital assets.