Author: William

Wu said blockchain authorized release

With the development of financial technology and changes in global geopolitical relations, governments of all countries are gradually realizing the great potential of stablecoins. Countries and regions such as the European Union, the United States, Singapore, and Hong Kong have launched consultation and legislative activities one after another, in order to seize opportunities in the future. On August 15, the Monetary Authority of Singapore (MAS) announced the final regulatory framework for stablecoins, becoming one of the first jurisdictions in the world to incorporate stablecoins into the local regulatory system. In the near future, Hong Kong, China, and the United States will both introduce stablecoin regulations. Therefore, the regulatory framework released by Singapore this time is of great value and will become a reference template for regulatory agencies in various countries to a certain extent. To this end, this article will analyze the Singapore stablecoin regulatory framework in detail, and gain insight into the future development trend of global stablecoin regulation.

1. Key Points of Singapore’s Stablecoin Regulatory Framework

MAS's earliest regulatory attempt on stablecoins can be traced back to the PS Act introduced in December 2019, and then issued a consultation document in December 2022 to solicit public opinions on the proposed stablecoin regulatory framework, and finally in this year's The final stablecoin regulatory framework was finalized on August 15th. Therefore, Singapore's complete regulatory framework for stablecoins involves the content of the above three regulatory documents, not one of them. According to the author's review, Singapore's stablecoin regulatory framework mainly includes the following parts:

Figure 1 Key Points of Singapore’s Stablecoin Regulatory Framework

1. Scope of application

This time, Singapore’s regulatory framework for stablecoins has attracted market attention because of the openness of stablecoin issuance targets. MAS allows the issuance of stablecoins pegged to a single currency [1] (Single-currency stablecoin, referred to as SCS), the anchor currency is the Singapore dollar (SGD) + G10 currency [2] . Generally speaking, a country's currency is a symbol of its own sovereignty, and other countries have no right to manage it. But MAS allows stablecoins to be pegged to currencies of other countries, which is a major breakthrough. It shows that MAS has a certain degree of openness and innovation, fully considers the national conditions of the G10 countries and communicates with them.

Secondly, MAS has made major adjustments to the issuer. MAS divides stablecoin issuers into two categories: banks and non-banks. For non-bank issuers, MAS requires that only stablecoins with a circulation scale of more than 5 million Singapore dollars be included in the stablecoin regulatory framework, and they need to apply for an MPI license under the PS Act; otherwise, they do not belong to the scope of stablecoin regulation and only need to meet the PS Act under the DPT regulations. For banks, MAS originally planned to include tokenized deposits in the scope of stablecoins, but there is a huge difference in the nature of assets between the two (deposits are a product of the bank reserve system, not 100% collateralized, and are bank liabilities), and eventually it will be Therefore, banks must also issue 100% asset-backed stablecoins, but it should be noted that banks do not need to apply for an MPI license. The explanation given by MAS is that the Banking Act already requires banks to meet relevant standards.

Figure 2 Provisions on the Scope of Issuers

2. Reserve Management

In terms of reserve management, MAS has made detailed regulations, mainly in the following areas:

First of all, in terms of asset composition, MAS requires that reserves are only allowed to be invested in cash, cash equivalents, and bonds with a remaining maturity of no more than three months, and has detailed regulations on the qualifications of asset issuers: either issued by the government/central bank Currency cash, or an international institution with a rating of AA- or above. It is worth noting that **MAS has made a restrictive interpretation of cash equivalents: mainly refers to bank institution deposits, checks and money orders that can be quickly paid into cash, but does not include money market funds. **So investing 90% of assets in money market funds like USDC, or even investing in some commercial paper like USDT, does not meet the MAS regulatory requirements.

Secondly, in terms of fund custody, MAS requires the issuer to set up a trust and open a segregated account to separate its own assets from reserves; it also makes clear regulations on the qualifications of the fund custodian: it must have custody services in Singapore A licensed financial institution, or an overseas institution with a branch in Singapore and a credit score of not lower than A-. ** Therefore, stablecoin issuers who want to be included in the MAS regulatory framework in the future must find a financial institution that is local or has a branch in Singapore. **

Finally, in terms of daily management, MAS requires that the daily market value of the reserve fund be higher than 100% of the SCS circulation scale, and that it be redeemed at face value when redeeming, and the redemption period shall not exceed 5 days, and must be redeemed in The monthly audit report is published on the official website.

3. Qualification

The highlight of this regulatory framework is that MAS has detailed regulations on the qualifications of stablecoin issuers as part of prudential supervision. MAS mainly stipulates three aspects of the issuer's qualifications:

The first is the basic capital requirement (Base Capital Requirement), which is similar to the Basel Accord's requirements for the banking industry's own capital. **MAS stipulates that the capital of the stablecoin issuer shall not be less than SGD 1 million or 50% of the annual operating expenses (operating expenses, OPEX). **

The second is the solvency requirement (Solvency), which requires liquid assets to be higher than 50% of annual operating expenses or to meet the needs of normal asset withdrawals, and this scale needs to be independently verified. It should be noted that MAS clearly defines the categories of liquid assets, mainly including cash, cash equivalents, claims on the government, large-denomination certificates of deposit, and money market funds.

Finally, there is the business restriction requirement (Business Restriction), which requires the issuer not to engage in lending, staking, trading, and asset management businesses, and does not allow the issuer to hold shares in any other entity. **However, MAS also clearly stated that stablecoin issuers can engage in the business of stablecoin custody and stablecoin transfers to buyers. This actually restricts stablecoin issuers from conducting mixed operations. Furthermore, **MAS clearly states that stablecoin issuers are not allowed to pay interest to users through activities such as lending, staking, and asset management. But other companies could offer similar services for stablecoins, including sister companies in which the stablecoin issuer doesn’t have a stake. **

4. Other Regulatory Requirements

MAS also has regulations on information disclosure, qualifications and restrictions of stablecoin intermediaries, network security, and anti-money laundering, but there is nothing worthy of attention. Therefore, this article does not expand the analysis. Interested readers can read relevant documents by themselves .

2. On the Gains and Losses of Singapore’s Stablecoin Regulatory Framework

The promulgation of Singapore’s stablecoin regulatory framework has a huge impact on both the compliance development of the global stablecoin industry and the demonstration and leadership of other countries, so I won’t go into details here. Here we mainly focus on several areas where MAS can continue to improve in the future.

The stablecoin regulatory framework of the MAS has shelved or blurred the following important issues, which may cause hidden dangers in the near future.

The first is the issue of the type of reserve fund. MAS originally planned that the denomination currency of the reserve fund must be consistent with the anchor currency, that is, to issue a Singapore dollar stable currency, and its reserve assets must be Singapore dollar assets instead of US dollar assets. But this will bring about a serious problem: users are very concerned about whether the stable currency deposit and withdrawal is the world's mainstream currency such as the US dollar. If the Singapore dollar stable currency can only be exchanged for the Singapore dollar, then the stable currency will not have a competitive advantage, and the circulation will be small; secondly, the types and depth of investable assets of some anchor currencies are very limited, and the management of reserves will be very limited. A major challenge. MAS should also take note of these issues, but it does not explicitly allow reserves to be invested in different currency assets, but only reiterates that the issuer needs to control risks and meet the 100% reserve requirement.

The second is the problem of cross-jurisdiction. MAS has proposed two solutions to solve this problem. One is that the issuer submits a certification document every year to prove that the issuance of stablecoins in other regions also meets the same standards; the other is to cooperate with different jurisdictions. To establish cooperation. However, in the end, the above two solutions could not be realized due to practical factors. For this reason, MAS can only settle for the next best thing, requiring stablecoin issuers not to allow cross-jurisdictional issuance at the initial stage. However, some stablecoins have become global stablecoins, issued in different regions and on different public chains. If the publisher fulfills the above requirements, it may lose market competitiveness.

A final regulatory issue for systemically important stablecoins. In last year's consultation paper, MAS described what systemically important stablecoins are, and hopes to regulate them according to the standards of financial market infrastructure. However, according to practical factors, MAS has chosen to shelve the controversy to see the aftermath.

Regardless of the regulatory content itself, an important issue that the market is also concerned about is: What are the gains and losses of issuing compliant stablecoins in Singapore?

On the one hand, the advantage of compliant stablecoins lies in their compliance. For example, due to its own compliance and security, compliant stablecoins give users stronger confidence, which is further reduced. MAS requires that compliant stablecoins be labeled as "MAS-Regulated Stablecoin" to distinguish them from other stablecoins. It is conducive to the promotion of stable coins; another example is that because compliance is more recognized by traditional financial institutions, there are fewer obstacles from banks when depositing and withdrawing funds.

On the other hand, we should also pay attention to the cost of compliant stablecoins. First of all, MAS clearly stipulates the qualifications for issuance, and makes clear regulations on its own capital, solvency and business scope, while the existing stablecoin issuers are not restricted by such regulations; secondly, the issue of market fairness, MAS stipulates that banks issue Stablecoins do not need an MPI license, but non-bank issuers need to apply for an MPI license. At present, the cycle of applying for MPI is about 1-2 years, and there are many review requirements for enterprise qualifications. Since the implementation of the PS Act in 2019, the number of enterprises that have obtained MPI licenses is not large. Therefore, if you want to issue a compliant stablecoin in Singapore, you need to pay a lot of time, manpower and material costs.

To sum up, under the current MAS stablecoin regulatory framework, banks or powerful large companies are more likely to issue "MAS-Regulated Stablecoin"; for non-bank SMEs, the current policy is not friendly.

[1] Note: MAS does not allow the issuance of stablecoins linked to a basket of currencies, nor does it allow linked digital assets and stablecoins issued by algorithms

[2] Note: G10 currencies include AUD, CAD, GBP, EUR, JPY, NZD, NOK, SEK, CHF and USD