The Monetary Authority of Singapore (MAS) has proposed a slew of new rules to rein in the local crypto industry – starting with some stringent standards for stablecoin issuers.
The rules include setting capital and reserve requirements for issuers of stablecoins, which are cryptocurrencies that maintain their value against fiat currencies or assets like gold. The measures also seek to ban issuers from engaging in "other activities that introduce additional risks" like lending or staking, which lets users lock their crypto and earn interest.
The proposals, which were published on Wednesday, come after a turbulent year for crypto markets. The downturn is particularly frustrating for Singapore regulators, as a number of collapsed multi-billion-dollar crypto enterprises like stablecoin issuer Terraform Labs and crypto hedge fund Three Arrows Capital have ties to the country. The MAS had since promised to tighten regulations for the sector.
In two documents, which are open to public consultation until Dec. 21, the proposed stablecoin rules are accompanied by intentions to limit certain retail investors from accessing crypto markets.
"MAS is concerned that retail customers may not have the financial wherewithal to withstand large losses that are likely to ensue from speculative trading of markets that they do not fully understand," a consultation paper on proposed regulatory measures for digital payment token services said.
The MAS wants stablecoin issuers (that have previously come under scrutiny over the quality of the reserves that back the assets) to at least match their reserves to the value of the crypto in circulation.
For instance, stablecoin issuer Circle will be required to hold cash (and cash-equivalent) reserves to match the $43.8 billion worth of USD coin in circulation – and must be valued on a daily basis. The reserves must also be in the same currency as the one to which the stablecoin is pegged.
The proposed measures also seek to establish a base capital requirement, which would be the higher of 1 million Singapore dollars (around $709,000) or operating expenses for six months.
To mitigate the risk of overleveraging that, in part, led to the cascading fall of a number of lenders in the space, the MAS also wants to prohibit stablecoin issuers from providing "other non-issuance services" like lending, staking, trading – although companies could still engage in these activities through a "separate related entity in which the issuer does not have a stake."
Consumer access measures
The MAS is also proposing crypto service providers to set up checks for retail customers, to gauge their financial knowledge. These requirements won't apply to Artificial Intelligence-based trading systems or institutional investors "who are generally regarded as better able to access professional advice," the document said.
In the same document, the MAS proposes that crypto platforms "establish and implement effective policies and procedures to identify and address conflicts of interests."
"For example, an entity may operate a market (trading venue) while at the same time conduct proprietary trading and/or market making services, allowing the entity to potentially front run customers’ orders," the document said, adding that the companies must therefore "disclose to their customers" of any conflicts of interest along with measures to mitigate them.
UPDATE (Oct. 26, 2022 08:00 UTC): Adds more detail from both proposals throughout the article.
CORRECTION (Oct. 26 14:40 UTC): Fixes the dollar amount on the $43.8 billion worth of USD coin in circulation.
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