Digital Asset Business Single Currency Pegged Stablecoins (SCPS) Guidance

Summary

This is BMA guidance clarifying prudential expectations for Digital Asset Business (DAB) licensees under the Digital Asset Business Act 2018 that issue Single Currency Pegged Stablecoins (SCPS). It sets out the Authority's expectations on governance, backing assets, disclosures, stress testing, bankruptcy remoteness, recovery planning and own funds, applied proportionately to each issuer's nature, scale, complexity and risk profile.

• Governance and risk management: Boards must approve and review risk strategies, risk tolerance and funding plans at least annually; senior executives must regularly report on compliance to the board.
• Backing assets: SCPS issuers must hold sufficient, high quality backing assets at least equal to SCPS in issuance, segregate client assets from own assets, and value and adjust backing assets daily.
• Disclosures: Issuers should produce monthly attestations or external audits of backing assets, publish and update a white paper, and disclose investment policy, redemption terms and ongoing data on SCPS in circulation and backing asset composition.
• Stress testing: Issuers should design and run idiosyncratic, market driven and combined stress scenarios at least annually or after material business changes, and translate results into contingency plans.
• Recovery and resolution planning: Issuers should maintain, document and test a recovery and resolution plan (including a contingency funding plan and orderly wind down plan) at least annually.
• Own funds: Issuers are expected to hold minimum liquidity proportional to expected SCPS in circulation and determine an appropriate net assets level aligned with their risk appetite, deducting illiquid assets.
• Bankruptcy remoteness and interoperability: Additional expectations cover legal structuring for bankruptcy remoteness of backing assets and interoperability considerations for SCPS.

The guidance is expressed as expectations under a principles based regime rather than fixed rules, so the BMA applies it proportionately and retains discretion to impose additional requirements on a case by case basis.

Key obligations

• Board of directors must approve and review risk management strategies, risk tolerance and funding strategies at least annually
• Senior executives must continuously and regularly report to the board on compliance with regulatory requirements and internal controls
• SCPSIs must design, implement and document due diligence processes for assessing market makers
• SCPSIs must hold backing assets with market value equal to or higher than the value of SCPS in issuance, sufficiently liquid to meet redemptions
• SCPSIs must keep client assets received for SCPS segregated from their own assets and must not use them for their own benefit
• SCPSIs must value backing assets daily and adjust holdings daily to at least the currency amount to which the SCPS is pegged
• SCPSIs should produce monthly attestations of backing assets and/or external audits with specified content (auditor information, management assertion, scope, asset detail, custodial arrangements, findings, risk disclosures, signatures)
• SCPSIs should publish a white paper on their website describing the business, rights and obligations, and risks, and update it when information changes
• SCPSIs should fully disclose their investment policy and invested backing assets to clients and the Authority
• SCPSIs should provide ongoing disclosure to clients of SCPS in circulation, backing asset composition, and market/net asset value, as soon as commercially practicable after each calendar month end and after client requests (data not aged more than 30 days unless agreed)
• SCPSIs that do not guarantee redemption at par must clearly disclose this to clients
• SCPSIs must clearly disclose any redemption conditions such as fees, processing times and minimum redemption amounts
• SCPSIs should identify, design and implement stress testing scenarios (idiosyncratic, market driven, combined) at least annually or upon material change in business, strategy or risk profile
• SCPSIs should approve, review and test their recovery and resolution plan at least annually or upon material business change
• SCPSIs are expected to hold minimum liquidity based on a proportion of expected SCPS in circulation using specified core liquid assets
• SCPSIs are expected to determine an appropriate net assets level aligned with risk appetite, deducting illiquid assets such as intangibles and certain financial institution investments

Applies to

Digital Asset Business (DAB) licensees under the Digital Asset Business Act 2018, Single Currency Pegged Stablecoins Issuers (SCPSIs)

Deadlines

• at least annually: Board review of risk management strategies, risk tolerance and funding strategies
• at least annually or upon material change: Stress testing scenarios must be designed, implemented, reviewed and approved
• at least annually or upon material change: Recovery and resolution plan must be approved, reviewed and tested
• monthly: Attestations of backing assets and/or external audits should be produced
• as soon as commercially practicable after the end of each calendar month: Disclosure to clients of SCPS in circulation, backing asset composition and latest market/net asset value
• not aged by more than 30 days unless otherwise agreed: Data provided to clients upon request about backing assets