MAS proposes new licensing class, designation and measures for stablecoin issuance, tightens grip on issuers

Singapore's stablecoin rulebook is about to get a major rewrite. The Monetary Authority of Singapore (MAS) has issued a consultation paper proposing sweeping amendments to the Payment Services Act (PS Act), tightening and updating the regulatory framework first finalised in 2023 to keep pace with fast-moving developments in the stablecoin ecosystem. At stake is how to drive interest and innovation in stablecoins without compromising financial stability, consumer protection and market integrity.

The consultation paper titled ‘Consultation on Proposed Amendments to the Payment Services Act 2019 for Stablecoins Regulation’ covers five key areas:

1. Key legislative amendments;

2. Additional requirements for MAS-regulated stablecoin issuers;

3. Designated systemic stablecoins;

4. Regulatory treatment of offshore-issued stablecoins; and

5. Clarifications on the regulatory approach to stablecoins and related activities.

As a reminder, MAS first consulted on its regulatory framework for stablecoin-related activities in October 2022. And then in August 2023 finalised its regulatory approach for MAS-regulated single-currency stablecoins. The current consultation proposes legislative amendments to the PS Act to introduce the regulatory framework for stablecoins in Singapore, and proposals on further requirements given industry developments since 2023.

The consultation represents the next major phase of Singapore's stablecoin regulatory framework. The proposals demonstrate MAS' intention to support legitimate stablecoin use cases while introducing safeguards similar to those expected of other systemically important financial activities.
 

Key legislative amendments

Definition of stablecoins: Stablecoins to fall under the broader category of digital payment tokens for the purpose of regulation under the PS Act, unless otherwise expressly provided. Further, fiat-pegged stablecoins do not constitute ‘e-money’ for the purposes of the PS Act.

New licence class for MAS-regulated stablecoin issuance: There will be a new licence class of ‘stablecoin issuance’. Licensed stablecoin issuers would be permitted to issue stablecoins bearing the ‘MAS-regulated stablecoin’ designation.

Issuers will not be allowed to conduct other regulated activities. For example, they would not be able to issue non-MAS-regulated stablecoins, carry out other payment services, or to perform capital market services or banking business.
 

Additional requirements for MAS-regulated stablecoins

Prohibition on interest payments: Issuers of MAS-regulated stablecoins will not be permitted to pay interest, return, or any other benefit to a holder that is directly or indirectly attributable to the holding of or balance of MAS-regulated stablecoins. This prohibition serves to clearly distinguish MAS-regulated stablecoins as a form of payment instrument or medium of exchange from an investment or savings product that could yield returns from passive holding. This approach is aligned with international regulatory practices.

Reserve assets to be held in cash/deposits: MAS is considering whether a minimum proportion of reserve assets should be held in cash/bank deposits to enhance liquidity and facilitate redemption during market stress. This will be in line with the requirements in the UK and EU.

Enhanced consumer protection measures: Issuers are required to safeguard customers’ monies received before stablecoins are issued and before redemption proceeds are paid out. This will serve to ringfence consumers’ funds in the event of insolvency.

In addition, issuers whose licences are revoked, suspended or surrendered may be prohibited from continuing any stablecoin issuance activities. MAS is also seeking powers to ensure orderly redemption of outstanding stablecoins before an issuer exits the market.

Additional risk management expectations: MAS has proposed several new risk management requirements:

• Regular stress testing of reserve assets and redemption arrangements;

• Annual recovery and orderly wind-down planning;

• Board oversight of stress testing and contingency planning;

• Technical capabilities to trace, freeze and burn stablecoins linked to illicit activities; and

• Additional AML/CFT-related controls.

Designated systemic stablecoins

MAS intends to designate a stablecoin as systemic where such designation is necessary to prevent risk events or disruptions to Singapore’s financial system or is otherwise in the public’s interest. MAS will also have the power to withdraw a designation where circumstances no longer warrant it.

In designating a stablecoin as systemic, MAS will take into consideration a combination of factors such as:

• Size of the stablecoin in circulation

• Interconnectedness with payment systems in Singapore

• Interconnectedness with broader financial system in Singapore

• Substitutability of stablecoin

Issuers of systemic stablecoins will be subject to enhanced requirements in line with the recommendations by the Financial Stability Board, including, but not limited to requirements relating to corporate governance, recovery and resolution.
 

Regulatory treatment of offshore-issued stablecoins

Multi-jurisdiction issuance (MJI): MJI arrangements involve the issuance of the same fungible stablecoin by related or affiliate issuing entities operating in different jurisdictions. The same fungible stablecoin may be concurrently issued by both a Singapore-incorporated issuer and a foreign-incorporated issuer, both sharing the same reserve pool.

MAS will allow stablecoins to be issued concurrently from Singapore and one or more foreign jurisdictions, and for the issuer to hold out the stablecoin as ‘MAS-regulated’, provided there is assurance that the risks associated with MJI stablecoins are sufficiently mitigated. Key risk mitigants include arrangements in relation to the reserve asset pool that address the risk brought about by the bifurcation of reserve asset pools across jurisdictions, and the transferability of reserves between co-issuers during periods of market stress.

Safeguards for MJI: The key safeguards will include:

• Supervision of all foreign issuers under equivalent stablecoin regulatory regimes to MAS;

• Supervisory cooperation between MAS and overseas regulators;

• Appropriate reserve asset segregation and governance arrangements;

• Comparable redemption rights across jurisdictions; and

• Coordinated recovery and effective wind-down planning.

Recognition for foreign-regulated stablecoins: MAS is also considering a recognition regime for selected foreign-issued stablecoins that are regulated under frameworks deemed substantively equivalent to Singapore's stablecoin regime. Such stablecoins would remain supervised primarily by their home regulator. Recognised foreign-issued stablecoins will remain clearly distinguishable from MAS-regulated stablecoins that are directly supervised by MAS.
 

Further clarifications on regulatory approach

Not investment products: MAS’ stance remains that while stablecoins may be used for payments, they should not be used by the public as investment products or for generation of yield, akin to bank deposits.

Retail protections for non-MAS-regulated stablecoins: MAS is considering imposing requirements on licensed DPT service providers who offer non-MAS-regulated “stablecoins” to their customers. The requirements considered include:

• Providing enhanced disclosures to retail customers on the reserve assets backing such tokens.

• Providing clear risk warnings to retail customers that these DPTs are not regulated by the MAS for value stability and that such tokens may not maintain their promised value.

• Restricting marketing of such tokens to their retail customers using the term “stablecoin”.
   

How Ocorian can help

We can help you interpret the proposed requirements and support licence readiness assessments and licence applications. We can also provide monitoring support and internal audit assistance to help firms keep pace with evolving regulatory expectations in Singapore’s digital asset and payment services landscape.

About the authors

Billie Jo Dixon is the practice lead for Ocorian’s Regulatory and Compliance team in Singapore. She has over twenty years’ experience in financial services and is a respected expert in regulatory compliance. She helps firms decide if they need to be licensed in Singapore and guides them through the MAS licensing process and all aspects of being a licensed business.

Anthony Xavier is a Principal Consultant in Ocorian’s Regulatory and Compliance team, with over 17 years’ experience in financial services. He specialises in MAS licence applications and regulatory advice for capital markets intermediaries and payment service providers. Before joining Ocorian, Anthony worked at the MAS, where he supervised capital markets intermediaries, assessed licence applications and conducted on-site examinations.