Overview
- The Monetary Authority of Singapore (“MAS”) has issued a consultation paper proposing a more flexible prudential approach to cryptoassets issued on public (permissionless) blockchains i.e. networks that are open to all participants and do not rely on a central operator.
- In simple terms, this is about how much capital banks must hold when dealing with these assets, based on how risky they are considered to be.
- Previously, such cryptoassets were effectively subject to conservative capital treatment, regardless of their design. MAS now proposes to allow these cryptoassets to qualify for more favourable capital treatment where banks can demonstrate that the associated risks are adequately mitigated.
- If adopted, this would represent a clear shift from a conservative treatment by default to a risk-based, conditional framework, albeit within tightly defined limits.
- The proposals also follow industry feedback that the earlier approach to permissionless cryptoassets was overly restrictive and not sufficiently technology neutral, particularly in light of developments in risk mitigation practices.
Key takeaway: MAS is not proposing to relax prudential standards. Rather, it is introducing a pathway for certain cryptoassets to be treated more favourably, provided risks can be demonstrated to be adequately mitigated, and within defined limits.
How MAS looks at risk
- In our view, MAS’ prudential approach is straightforward: it focuses on risk, not labels or technology.
- In practice, MAS looks at things like:- how reliable the underlying system is;
– whether transactions are final and enforceable;
– who controls or governs the system; and
– whether risks, including financial crime risks, can be effectively managed.
- Where these risks are higher or less well understood, more conservative capital treatment applies. In our view, this explains why such cryptoassets have historically been treated conservatively, and why MAS is now prepared to allow more favourable capital treatment where these risks can be adequately managed.
Key risk areas MAS expects banks to address
- MAS identifies four key risks arising from public blockchains and proposes that banks must demonstrate that these are effectively mitigated:
| Risk area | MAS proposed expectation |
| Governance risk | The permissionless blockchain has a sufficiently diversified set of validators and clear governance arrangements that are clearly documented and accessible. |
| Technology risk | Systems ensure the accuracy and integrity of transaction records. |
| Settlement finality risk | The cryptoasset remains operationally resilient, even if the blockchain fails. |
| Anti Money Laundering/Countering the Financing of Terrorism risk | Mechanisms exist to verify users or otherwise implement effective safeguards to mitigate financial crime risks. |
- Rather than relying solely on prescriptive classification conditions, MAS proposes to assess whether these risks are adequately mitigated in practice.
How these requirements can be met in practice
- To provide greater certainty, MAS sets out safeguards that, if met, would be treated as satisfying the above requirements.
- These include:- absence of concentration of control among validator nodes;
– monitoring and dispute resolution mechanisms;
– a clearly defined point of transaction finality;
– independent audits of smart contracts; and
– controls restricting participation to verified users (e.g. through whitelisting mechanisms).
- Where these are not met, banks must demonstrate to MAS’ satisfaction that equivalent safeguards are in place.
Access granted (but only within defined limits)
- MAS proposes to apply exposure and issuance caps during an interim period (i.e. from publication of the consultation paper until the broader crypto prudential framework is finalised or revised). In simple terms, only a limited portion of a bank’s exposure or issuance can benefit from this more favourable capital treatment:
| Entity | Exposure cap (proposed) | Issuance cap (proposed) |
| Locally incorporated banks | 2% of Tier 1 capital | 5% of Tier 1 capital |
| Singapore branches | 0.2% of total assets | 1% of total assets |
- Any exposure exceeding these caps would continue to be subject to more conservative treatment, even if the permissionless cryptoasset meets the principle-based requirements.
- These caps are central to the framework. They allow banks to benefit from more favourable capital treatment, but only up to a limited level. In our view, MAS can then use this interim period to calibrate the appropriate long-term approach, including whether such caps remain necessary.
Strong supervisory controls
- Under the proposals, banks would be required to:- notify MAS at least one month prior to applying the alternative approach for such cryptoassets;
– provide senior management confirmation that the relevant requirements are met; and
– seek MAS’ approval, including where relying on alternative safeguards.
– MAS would also retain the ability to override a bank’s classification.
What this signals for the payments and digital asset ecosystem (if adopted)
In our view, the proposals signal a calibrated shift in MAS’ approach to public blockchain-based activity within the regulated financial system.
- Unlocking real-world financial use cases: The proposals may support developments in tokenised payments, stablecoin-based settlement and blockchain-based financial infrastructure, by making it more viable for banks to engage with such models.
- Higher expectations on governance and risk management: Banks must demonstrate, to MAS’ satisfaction, that risks are adequately mitigated. In practice, this is likely to require stronger governance, transparency and controls from the broader ecosystem to support banks in demonstrating that these risks are adequately managed.
- Implications beyond banks: Although aimed at banks, the proposals are likely to shape the broader ecosystem. Cryptoasset issuers and infrastructure providers will need to design products that banks can hold, support regulatory compliance, and build in governance and transparency from the outset.
- A clearer pathway to participation: In our view, the key development is not a lowering of standards, but the creation of a structured pathway for public blockchain-based cryptoassets to be capable of being held and used by banks within Singapore’s regulated financial system.
Next steps
- MAS is seeking feedback on the proposed framework, including:- the adequacy of the principle-based requirements and deeming provisions;
– the inclusion of AML/CFT-related requirements; and
– the necessity and calibration of the proposed exposure and issuance caps.
- Submissions are due by 18 May 2026.
How we can help
- We support clients in navigating MAS’ evolving crypto prudential framework, including:- assessing eligibility for more favourable capital treatment under the proposed regime;
– mapping existing controls to MAS’ proposed requirements;
– preparing consultation responses and regulatory submissions; and
– advising on governance, risk and compliance frameworks aligned with MAS expectations.
This article is produced by our Singapore office, Bird & Bird ATMD LLP. It does not constitute legal advice and is intended to provide general information only. Information in this article is accurate as of 24 April 2026.
For further information, please contact:
Kenneth Lo, Bird & Bird
kenneth.lo@twobirds.com
