Digital Asset Business Single Currency Pegged Stablecoins (SCPS) Guidance (May 2024)

Summary

This is BMA guidance, not binding law, setting out the Authority's supervisory expectations for entities licensed under the Digital Asset Business Act 2018 (DABA) that issue Single Currency Pegged Stablecoins (SCPS). It applies a proportionality principle, meaning the intensity of expected governance, risk management and capital arrangements scales with an issuer's nature, scale, complexity and risk profile.

• Governance and risk management: Boards and senior executives should approve, review (at least annually) and oversee risk strategies, risk appetite and funding strategies.
• Market making and due diligence: Issuers should document due diligence on market makers and maintain systems to monitor and escalate related risks.
• Backing assets: Issuers should hold sufficient, liquid, high-quality backing assets equal to or exceeding SCPS in issuance, segregate client assets, diversify holdings, avoid rehypothecation, and value backing assets daily.
• Disclosures: Issuers should produce regular attestations/external audits with specified content, publish and keep updated a white paper, and disclose investment policy, redemption terms and risk information to clients and the Authority.
• Stress testing: Issuers should design and run stress tests at least yearly (or after material business/risk changes) covering idiosyncratic, market-wide and combined scenarios.
• Bankruptcy remoteness and interoperability: Backing assets should be held in structures bankruptcy remote from group entities, with attention to operational resilience and incident response.
• Recovery and resolution planning: Issuers should maintain, document and test (at least annually) a recovery and resolution plan, including a contingency funding plan and orderly wind down arrangements.
• Own funds requirements: Issuers are expected to hold minimum liquidity based on SCPS in circulation and an appropriate net assets level aligned with risk appetite, with the Authority able to require higher amounts.

The guidance supplements the DABA's principles based regime and existing Rules, Codes and Statement of Principles rather than replacing them; the Authority retains discretion to impose additional requirements as SCPS business models evolve.

Key obligations

• SCPS issuers should establish board and senior executive governance arrangements, reviewing risk strategies, risk tolerance and funding strategies at least annually
• SCPS issuers should design, implement and document due diligence processes for market makers
• SCPS issuers should hold sufficient quantity and quality of backing assets equal to or greater than SCPS in issuance, valued daily and adjusted to the pegged currency amount
• SCPS issuers should segregate client assets from own assets and not reuse or rehypothecate them
• SCPS issuers should diversify backing assets across investment strategies and third parties
• SCPS issuers should produce regular attestations or external audits of reserves covering auditor information, management assertion, scope, asset composition, custodial arrangements, findings and risk disclosures
• SCPS issuers should publish and keep updated a white paper on their website describing the business, rights/obligations and risks
• SCPS issuers should disclose investment policy and backing asset details to clients and the Authority, including issuer and credit rating information
• SCPS issuers should provide ongoing disclosure of SCPS in circulation, backing asset composition and market/net asset value, updated at least monthly or within 30 days of a client request
• SCPS issuers should clearly disclose if redemptions are not guaranteed at par, and disclose any redemption conditions such as fees, processing times and minimum amounts
• SCPS issuers should design and implement stress testing scenarios at least yearly or after material business or risk profile changes, covering idiosyncratic, market wide and combined scenarios
• Backing assets should be placed in structures that are bankruptcy remote from group entities and other involved parties
• SCPS issuers should maintain a documented recovery and resolution plan, including a contingency funding plan, approved, reviewed and tested at least annually or after material change
• SCPS issuers should hold minimum liquidity based on expected SCPS in circulation and determine an appropriate net assets level aligned with risk appetite

Applies to

Digital Asset Business (DAB) licensees, Single Currency Pegged Stablecoins Issuers (SCPSIs)

Deadlines

• at least annually: Board review of risk management strategies, policies, risk tolerance and funding strategies
• at least yearly or upon material change in business or risk profile: SCPSIs should identify, design and implement stress testing scenarios
• at least annually or upon material change: SCPSIs should approve, review and test their recovery and resolution plan
• as soon as commercially practicable after the end of each calendar month: Disclosure to clients of latest market value or net asset value of backing assets
• not aged by more than 30 days unless otherwise agreed: Disclosure of backing asset value data upon client request