Today the Monetary Authority of Singapore (MAS) opened a consultation on stablecoins, following a previous one in 2019. Responses must be received by December 21. Two of the most thoughtful aspects are how bank-issued stablecoins can co-exist with other stablecoins and how to regulate a stablecoin issued in multiple jurisdictions.
The regulator plans to create a new activity, Stablecoin Issuance Service, for organizations that issue and redeem stablecoins. Banks can choose to issue stablecoins which are tokenized bank deposits, in which case there are no additional regulatory requirements given they are already regulated.
Alternatively, a bank, like non-bank stablecoin issuers, can choose to set aside ring-fenced reserves. This type of stablecoin will be called a regulated or securely-backed stablecoin, no matter the nature of the issuer. And for regulated stablecoins, banks will have to comply with stablecoin rules just like non-banks, apart from prudential requirements, which are already dealt with in the Banking Act.
Regulated stablecoin issuers have to invest the backing assets in cash or short-term (3 month) securities issued by a governmental body with an AA- or better rating and in the same currency as the stablecoin.
Non-bank stablecoin issuers have minimum capital and liquidity requirements to ensure that they can cover at least six months of operating costs at all times. They are not allowed to participate in other risky activities such as lending, staking or crypto trading.
MAS wants to ensure that stablecoins are of a high caliber, so Singapore-issued tokens can only be in Singapore Dollars or one of the G10 currencies to ensure sufficient quality of backing assets.
A major challenge for regulators is supervising stablecoins that are issued in multiple jurisdictions and are technically fungible with each other. MAS is only willing to authorize the issuance of a stablecoin in Singapore if it has some assurance about the entire issuance.
One approach is to get an annual independent attestation that the stablecoin meets similar standards to Singapore regarding reserves and prudential requirements in other significant issuance jurisdictions. The alternative is cooperation with other regulators.
One surprisingly relaxed proposal is that service providers must ensure that any stablecoin transfers are settled within three days. That seems a long time, given most stablecoin transfers are instant or within minutes.
Today MAS also opened a consultation about proposed cryptocurrency rules.
Meanwhile, MAS is running institutional DeFi experiments with JP Morgan, DBS Bank, SBI Digital Assets, and bond issuer Marketnode and is also leading a cross border CBDC initiative, Project Dunbar.
