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MAS proposes measures to reduce risks to consumers from cryptocurrency trading
On the 26th of October, the Monetary Authority of Singapore (MAS) published two consultation papers that propose new regulatory measures to reduce the risk of consumer harm from cryptocurrency trading and to support the development of stablecoins as a credible medium of exchange in the digital asset ecosystem. These measures will form part of the Payment Services Act.
In this article, we will take a look at what is contained within these regulations.
Why have these regulations been introduced?
The MAS views trading cryptocurrencies (also known as DPTs) as highly risky and not suitable for the general public. However, they accept that cryptocurrencies play an ever growing and supporting role in the broader digital asset ecosystem, and it would not be feasible to ban them. Therefore, in order to protect consumers from speculative trading in cryptocurrencies, MAS plans to require that DPT service providers ensure proper business conduct and undertake adequate risk disclosure procedures.
What areas does the proposal cover?
The MAS proposal covers the following areas.
- Consumer Access. DPT service providers will be required to provide relevant risk disclosures. These risk disclosures will enable retail consumers to make informed decisions regarding cryptocurrency trading. They must also disallow the use of credit facilities and leverage by retail consumers for cryptocurrency trading.
- Business Conduct. DPT service providers will be required to implement proper segregation of customers’ assets. This is to mitigate any potential conflicts of interest that may arise from the multiple roles they perform. They will also be required to establish complaint-handling processes.
- Technology Risks. DPT service providers will be required to maintain their critical systems’ high availability and recoverability.
Regulating the issuance of stablecoins
As mentioned above, the MAS views Stablecoins as a risky investment, however, they do see the potential for them to be a medium of exchange to facilitate transactions in the digital asset ecosystem. However, such exchanges must be well-regulated and securely backed. Therefore, the current regulatory framework in place, which mainly focuses on 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.
The MAS will regulate the issuance of stablecoins which have been pegged to a single currency (“SCS”). These regulations will apply where the value of the SCS in circulation exceeds S$5 million. The key proposed issuer requirements relate to:
- Value Stability. 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.
- Reference Currency. All SCS issued in Singapore can be pegged only to the Singapore dollar or any Group of Ten (G10) currencies.
- Disclosures. Stablecoin issuers will be required to publish a white paper disclosing details of the SCS, including the redemption rights of stablecoin holders.
- Prudential Standards. SCS issuers must always meet a base capital requirement of the higher S$1 million or 50% of the annual operating expenses of the SCS issuer. They are also required to hold liquid assets which are valued at a higher than 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 Stablecoins as well. Furthermore, no additional reserve backing and prudential requirements will apply when the Stablecoin is issued as a tokenized form of bank liabilities. This is due to the existing extensive capital and liquidity frameworks already applied to banks.
For non-issuance services, DPT service providers can offer all types of stablecoins provided that they clearly label the MAS-regulated Stablecoins to distinguish them from the unregulated ones.
What does the MAS hope to achieve with these regulations?
The MAS hopes that these proposed measures will further enhance Singapore’s regulatory approach for Blockchain in the country. These regulations are expected to foster an innovative and responsible digital asset ecosystem. These regulations are hoped to go hand-in-hand with innovation in financial services.
How can Belaws help?
To learn more about blockchain in Singapore, why not take a look at our Blockchain services.
Additionally, you can talk directly to one of our experts.
Please note that this article is for information purposes only and does not constitute legal advice.
Our consultations last for a period of 1 hour and are conducted by our expert lawyers who are fluent in English, French and Thai.
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