1 November 2022

On 26 October 2022, the Monetary Authority of Singapore (“MAS”) published two consultation papers setting out proposed regulatory measures to reduce the risk of consumer harm from trading in digital payment tokens (“DPTs”) and to support the development of stablecoins as a credible medium of exchange in the digital asset ecosystem. These measures will be part of the Payment Services Act 2019 (“PS Act”). Both consultations close on 21 December 2022.

Consultation on proposed regulatory measures for DPT services

The consultation paper on Proposed Regulatory Measures for Digital Payment Token Services sets out proposed regulatory measures for licensees and exempt payment service providers that carry on a business of providing a DPT service under the PS Act (“DPT Service Provider”).

MAS is of the view that trading in DPTs (more commonly known as cryptocurrency) is highly risky and not suitable for the general public. However, DPTs play a supporting role in the broader digital asset ecosystem, and it would not be feasible to ban them. Therefore, to reduce the risk to consumers from speculative trading in DPTs, MAS will require that DPT Service Providers ensure proper business conduct and adequate risk disclosure.

The proposed measures fall broadly into the following areas.

Consumer access measures

  • Risk awareness assessment: MAS proposes that a DPT Service Provider should assess that a retail customer has sufficient knowledge of the risks of DPT services before providing any DPT service to that customer. For retail customers who have been assessed not to have sufficient knowledge of the risks, MAS seeks comments on the possible next steps for DPT Service Providers to take.
  • Restriction on offering incentives: DPT Service Providers will be restricted from offering incentives (whether monetary or non-monetary) to retail customers to participate in a DPT service, or to any person (e.g. an existing customer or a celebrity) to refer a DPT service to retail customers.
  • Restrictions on debt-financed and leveraged DPT transactions: DPT Service Providers must disallow the use of credit facilities and leverage by retail consumers for trading DPTs.

Business conduct measures

  • Segregation of customers’ assets and risk management controls: DPT Service Providers should ensure that customers’ assets are segregated from the DPT Service Providers’ own assets, and held for the benefit of the customer. Customers should be properly informed via written disclosures of the arrangements and risks involved in having their assets held by DPT Service Providers. Comments are also sought on whether DPT Service Providers should be required to appoint an independent custodian to hold customers’ assets.
  • Identification and mitigation of conflicts of interest: Where DPT Service Providers engage in multiple business activities (e.g. operating a trading platform, providing broker-dealer services and trading for their own or related accounts), conflicts of interest may arise. In this regard, MAS proposes that DPT Service Providers should establish and implement effective policies and procedures to identify and address conflicts of interests, and disclose to their customers the general nature and sources of conflicts of interest and the steps taken to mitigate them. In addition, DPT Service Providers should disclose the manner in which they handle and execute customer orders (e.g. whether they trade as counterparty against the customer or facilitate trade matching between customers), and the capacity in which they are doing so (e.g. as agent or principal).
  • Disclosure of DPT listing and governance policies: MAS proposes that DPT trading platform operators publish their policies and procedures on the process for selecting, listing and reviewing DPTs, as well as the relevant governance policies.
  • Complaints handling: MAS also proposes that DPT Service Providers have in place adequate policies and procedures to handle customer complaints.

Managing technology and cyber risks

MAS proposes to mandate the requirements in the Notice of Technology Risk Management that are currently applicable to other types of financial institutions, such as banks, to DPT Service Providers.

Market integrity

MAS seeks comments on effective systems, procedures and arrangements that DPT trading platform operators should implement, in order to promote fair, orderly, transparent trading of DPTs offered for sale on their trading platform.

MAS also seeks comments on effective measures to detect and deter unfair trading practices, including the implementation of market surveillance mechanisms.

Consultation on proposed regulatory approach for stablecoin-related activities

The consultation paper on Proposed Regulatory Approach for Stablecoin-related Activities sets out a proposed framework to regulate stablecoin issuers and intermediaries.

MAS is of the view that stablecoins have the potential to be a medium of exchange to facilitate transactions in the digital asset ecosystem, provided they are well-regulated and securely backed. The current regulatory framework, which primarily addresses 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.

MAS intends to focus its regulatory regime on single-currency pegged stablecoins (“SCS”). MAS will regulate the issuance of SCS where the value of SCS in circulation exceeds S$5 million. The key proposed issuer requirements relate to the following:

  • 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. Reserve 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: SCS issuers must publish a white paper disclosing details of the SCS, including the redemption rights of SCS holders.
  • Prudential standards: SCS issuers must, at all times, meet a base capital requirement of the higher of S$1 million or 50% of annual operating expenses of the SCS issuer. They must also hold liquid assets which are valued at the higher of 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 be allowed to issue SCS as well, and no additional reserve backing and prudential requirements will apply when the SCS is issued as a tokenised form of bank liabilities given the existing rigorous capital and liquidity frameworks applied to banks. For non-issuance services, DPT Service Providers can offer all types of stablecoins provided that they clearly label the MAS-regulated SCS to distinguish them from the unregulated ones. This will help customers make informed decisions on the risks involved in using unregulated stablecoins.

Reference materials

The following materials are available on the MAS website www.mas.gov.sg: