Singapore opens door to foreign stablecoins under tighter rules

Banks may need separate companies to issue stablecoins under the proposed framework.

Singapore is considering allowing more foreign stablecoins into its market whilst imposing stricter rules on issuers, potentially attracting international payment companies seeking access to Asia's financial markets.

“It's stricter because of trace-freeze-burn, recovery and wind-down plans, quarterly stress tests, and the ban on paying interest to holders,” Claudia Hui, Asia-Pacific head of compliance advisory at blockchain analytics company TRM Labs, Inc., said in an emailed reply to questions.

The proposed rules will require issuers to identify, freeze, and remove stablecoins linked to illegal activity, prepare for financial difficulties, and conduct regular stress tests.

The Monetary Authority of Singapore (MAS) proposed on 1 September to allow stablecoins jointly issued by Singaporean and foreign companies to qualify under its regulated stablecoin framework.

The central bank also proposed recognising certain foreign issued stablecoins already licensed overseas, provided it has a cooperation agreement with the foreign regulator.

The approach differs from Hong Kong, which requires issuers operating there or issuing stablecoins linked to the Hong Kong dollar to obtain a local licence, Etelka Bogardi, a partner at Reed Smith LLP, told Asian Banking & Finance.

Singapore also allows certain financial institutions to distribute stablecoins issued by unlicensed companies, whilst Hong Kong restricts distribution of unlicensed stablecoins to professional investors, she said in an emailed reply to questions.

MAS said it would assess cross-border issuance arrangements individually, subject to safeguards.

“Well-regulated stablecoins can potentially deliver efficiency gains, lower transaction costs, and incorporate programmable features,” the regulator said in an emailed statement.

Hui said Singapore's approach is closer to Japan's than the European Union's MiCA, which does not offer an equivalent recognition route for foreign issuers.

Bogardi expects payment companies already licensed to handle digital payment tokens to be amongst the main applicants for stablecoin issuer licences because of capital and operating requirements.

She identified StraitsX and Paxos as companies with an advantage, citing their existing in-principle approvals from MAS.

Hui expects banks to consider issuing stablecoins for corporate cash management, international settlements, and trade finance.

Banks may face an additional obstacle, however. Bogardi said the framework requires them to establish separate nonbank companies to issue stablecoins, potentially discouraging participation.

International issuers may instead seek recognition or joint issuance arrangements rather than applying for standalone Singapore licences, Hui said.

“The standards are high, but for serious issuers, that's the appeal,” she said. “A Singapore licence or recognition tells counterparties worldwide that the issuer can be trusted.”

Several requirements remain unresolved, including minimum cash reserves, limits on issuance, and rules governing stablecoins offered in Singapore without MAS regulation.

Hui said the regulator should also clarify identity checks for stablecoin holders, restrictions on wallets managed directly by users, and transaction monitoring.

Bogardi said uncertainty over whether issuers could use returns from reserve assets to fund operations could affect the fees they charge.

Singapore's Payment Services Act of 2019 may also need to be amended.

Bogardi said regulated stablecoins could support transactions involving digital representations of traditional assets and let financial institutions settle international payments outside normal banking hours.