Singapore spearheads stablecoin regulation – SFF 2023

上周的新加坡FinTech节日-设定触发器2023– attracted over 62,000 attendees from over 100 countries, cementing its role as one of the world's most impactful annual FinTech events.

SFF 2023 covered an ambitious array of topics from responsible tokenisation, efficient payments and FinTech ESG, to artificial intelligence.

A key takeaway was the Monetary Authority of Singapore's (MAS)announcementthat it will be issuing detailed regulations to establish the foundation of a sound stablecoin ecosystem in Singapore.

In this article we examine:

1. why this is significant;
2. what the new regulations will cover; and
3. what's next?

Significance of MAS' announcement

Contrary to many other central banks, MAS takes the view that "stablecoins – if well regulated – can potentially play a useful role as digital money alongside Central Bank Digital Currencies and tokenised bank liabilities."

Stablecoins are a form of cryptocurrency where their value is pegged to another currency, commodity, or financial instrument of stable value. Their purpose was called into doubt by the abrupt USD 40 billion crash of Terra-Luna stablecoin, which in turn triggered collapse of the world's third largest crypto exchange FTX in 2022.

Despite this, MAS' Managing Director Ravi Menon affirmed in August 2022 that MAS' approach is "Yes to digital asset innovation, No to cryptocurrency speculation".

In August 2023, MAS announcedkey features of its new regulatory frameworkfor Singapore stablecoin issuance. Whilst details were limited, a key focus of this framework is to ensure value stability at all times.

MAS re-affirmed its regulatory trajectory during SFF 2023 by announcing in-principle approval under Singapore's Payment Services Act to three entities that already demonstrate compliance with MAS’s upcoming detailed regulations. These three entities are StraitsX SGD Issuance, StraitsX USD Issuance and Paxos Digital Singapore (for a US dollar-backed stablecoin).

What will MAS' stablecoin regulations cover?

MAS' stablecoin regime will apply to single currency stablecoins (SCS) pegged to the Singapore dollar (or any G10 currency) that are issued in Singapore. It will create a clear delineation from other forms of digital payment tokens (including other stablecoins which are not subject to MAS' stablecoin regime).

Issuers of the SCS need to (a) demonstrate value stability of the SCS asset, (b) maintain base capital and liquid asset, (c) be able to return par value of SCS to holders within five business days of redemption request and (d) provide appropriate disclosures to users, including information on the SCS’ value stabilising mechanism, rights of SCS holders, as well as audit results of reserve assets.

These requirements are designed to address shortcomings of cryptocurrencies which MAS has identified, being that (a) they performed poorly as a medium of exchange or store of value, (b) their prices were subject to sharp speculative swings and (c) many investors in cryptocurrencies have suffered significant losses.

What's next?

MAS revealed at SFF 2023 that detailed regulations for its stablecoin regime will not take effect for at least a year. That said, MAS is encouraging SCS issuers who would like their stablecoins recognised as “MAS regulated stablecoins” to make early preparations for compliance.

Prospective SCS issuers with innovative use cases can also apply to join MAS' Project Guardian or FinTech Regulatory Sandbox framework.

One such example isMAS' Project Orchid, where Fazz (under the StraitsX brand) showcases real-world interoperable and programmable payments. Programmable money or purpose bound money (PBM) is a key outcome that MAS is aiming to achieve for Singapore.

As explained by Fazz's Co-founder and Chief Legal Officer Samson Leo:

"I have found the MAS Payments Department to be very balanced, open-minded, and knowledgeable about blockchain technology as used in payments.

We used the programmable function of an open, permissionless blockchain (ethereum / polygon) to create 'purpose-bound money' (i.e. vouchers).

The underlying asset in the purpose-bound money is the XSGD stablecoin, which will get 'released' automatically by the blockchain's programmatic functions when the pre-programmed conditions are met.

The interoperable and open nature allows any e-wallet provider or blockchain wallet to allow for the loading of this purpose-bound money, and for it to be spent at a merchant who might not have been acquired by that same e-wallet provider."

XSGD-backed PBM is currently being piloted for atomic settlement in e-commerce transactions. This ensures that funds are released to merchants only when the customer receives the purchased items providing greater assurances to both parties. This was successfully tested at SFF 2023 in partnership with Amazon and Grab.

In another use case, MAS has announced a pilot betweenAnt International, Fazz and Grabthat uses PBM to make payments from Alipay users to GrabPay merchants. In this case, the PBM ensures that only verified Alipay wallet users can pay to eligible GrabPay merchants, with prudent transaction limits to mitigate risks of fraudulent activity.

Authors: Patrick Phua, Practice Head Asia, Global Loans and Global Markets, Ashurst ADTLaw; Jean Woo, Partner, Ashurst ADTLaw; Tracy Wang, Counsel, Ashurst; Hong Chia Tan, Senior Associate, Ashurst ADTLaw