Discourse on Proposed Basel Crypto Regulations for Banks in Singapore - Exception for Stablecoins Considered
Singapore's MAS Takes a Progressive Stance on Stablecoins and Permissionless Blockchains
The Monetary Authority of Singapore (MAS) has unveiled a nuanced and innovation-friendly regulatory approach towards permissionless blockchains and stablecoins, aiming to strike a balance between prudential oversight and Singapore's ambition to be a leading digital asset hub. This stance contrasts with the Basel Committee's more conservative view.
The Basel Committee classifies stablecoins on permissionless blockchains as high risk, restricting banks from meaningful engagement with such assets due to the associated capital requirements. This creates tension for Singapore's banking sector, as it hinders its role as a gateway for crypto businesses in Asia.
To address this, MAS is implementing new cryptoassets capital standards from January 2026, aligned with Basel timelines, but has introduced local prudential measures for stablecoin issuers. These measures include minimum base capital requirements and liquid asset holdings, fostering a regulated stablecoin ecosystem while recognizing the practical realities of the market.
MAS's framework supports the development of stablecoins on permissionless blockchains under a regulated environment, contradicting Basel’s restrictive capital treatment. This creates a regulatory arbitrage where Singapore-based stablecoin issuers operate under comprehensive local rules but face obstacles at the banking level due to Basel’s global prudential standards.
Regulators, including MAS, exhibit skepticism about public permissionless blockchains due to concerns like governance, control, and AML/KYC compliance. However, permissionless blockchains are evolving with mechanisms for permissioning at the protocol or token level to achieve compliance by design, aligning with MAS’s balance of innovation and regulation.
The MAS proposal suggests that node validators must be regulated and supervised, or subject to appropriate risk management standards. It also includes a clause that all entities falling within the scope of the proposal must have a comprehensive governance framework.
The MAS is seeking industry proposals to address potential risks associated with using repo and collateral swaps in stablecoin reserves. The proposals suggest qualifying reserves should include low-risk securities, central bank reserves, bank deposits, or reverse repo. The weighted average maturity of all reserves should have a limit of three months, according to the MAS proposals.
The consultation focuses primarily on stablecoins. Reverse repo involves a stablecoin issuer depositing cash with an institution in return for high-quality securities as collateral. The MAS has published a consultation about its implementation of Basel banking rules related to crypto-assets, and the Singapore proposals seem to take a more positive view of permissionless blockchains than the Basel Committee.
[1] Monetary Authority of Singapore. (2022). Consultation Paper on the Basel Framework for Crypto-assets. Retrieved from https://www.mas.gov.sg/-/media/MAS/News-and-Publications/Consultations/Consultation-on-the-Basel-Framework-for-Crypto-assets/Consultation-on-the-Basel-Framework-for-Crypto-assets.pdf
[2] Monetary Authority of Singapore. (2020). A New World of Finance: Embracing Digital Payments, Harnessing Technology, and Fostering a Culture of Innovation. Retrieved from https://www.mas.gov.sg/-/media/MAS/News-and-Publications/Speeches/2020/Ravi-Menon-A-New-World-of-Finance-Embracing-Digital-Payments-Harnessing-Technology-and-Fostering-a-Culture-of-Innovation.pdf
[3] Monetary Authority of Singapore. (2021). Clarification on the Application of the Payment Services Act to Digital Payment Token Services. Retrieved from https://www.mas.gov.sg/-/media/MAS/News-and-Publications/Guidelines-and-Circulars/Clarification-on-the-Application-of-the-Payment-Services-Act-to-Digital-Payment-Token-Services.pdf
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