The Financial Services Authority (FSA) hereby issues this Public statement pursuant section 28(2) of the Financial Services Authorities Act, 2013 to provide clarity to the public, market participants, and all stakeholders regarding the regulatory status of stablecoins under the Virtual Asset Service Providers (VASP) Act.
- Purpose of this Notice
This notice aims to:
- Inform the public of the current regulatory position and treatment in respect of stablecoins.
- Address enquiries received from industry participants regarding whether stablecoins are considered “virtual assets” for the purposes of the VASP Act.
- Ensure transparency and promote compliance with existing legal requirements.
- Definition of Virtual Assets Under the VASP Act
For the purposes of the VASP Act, a virtual asset is defined as:
“means a digital representation of value that can be digitally traded or transferred and can be used for payment or investment purposes and does not include digital representation of fiat currencies, securities and other financial assets”
The Act regulates persons engaged in virtual asset services, including activities such as exchange, transfer, custody and administration of virtual assets for and/ or on behalf of persons. It further registers the issuances of initial coin offerings and non-fungible tokens as respectively defined under the VASP Act.
- Treatment of stablecoins under the VASP Act
After an assessment of stablecoins as a category of digital instruments, the Authority hereby confirms the following regulatory position:
“Stablecoins, in their current form and usage within the domestic market, are not classified as “virtual
assets” under the VASP Act and therefore do not fall within the scope of VASP licensing or regulatory
requirements.”
The position is based on the following considerations:
3.1. Nature and Structure of Stablecoins
Stablecoins are typically pegged to a reference asset (e.g., fiat currency, commodities, or other stable financial instruments). Their purpose is primarily value preservation, rather than functioning as a speculative digital asset.
3.2. Exclusion Based on Functional Characteristics
Under the VASP Act, instruments that function similarly to fiat representations, closed-loop payment instruments, or redeemable stored-value arrangements do not meet the Act’s definition of virtual assets.
Most stablecoins currently observed within the market:
- Operate as digital representations of fiat value,
- Are redeemable for an equivalent amount of underlying assets, and
- Do not carry the characteristics of open-market virtual assets such as price volatility or speculative trading value.
Therefore, these instruments are excluded from the Acts’s scope.
- VASP activities in lieu of stablecoins.
In regards to VASP-related services in respect to stablecoins such as –
- Exchanges,
- Brokering/dealers,
- Hold/custody
- Investment advice.
would require a license under the VASP Act depending on the scope of the activities being undertaken.
- Important caveats and ongoing monitoring
While stablecoins issuances are not currently regulated under the VASP Act, the Authority emphasizes caution based on the risks to consumers and investors as exemplified below:
5.1. Counterparty risk associated with the issuer.
Such refers to the risk of the stablecoin issuers being unable or unwilling to meet its obligations to users. Unlike cash or other traditional fiat held in a bank account that is protected by the bank, stablecoin holders rely entirely on the financial health and integrity of the issuer. If the issuer experiences financial distress, mismanages funds, becomes insolvent, or is subject to fraud or legal action, users may be unable to redeem their stablecoins at face value, potentially resulting in partial or total loss of their holdings.
5.2. Lack of transparency on backing reserves.
Such arises when stablecoin issuers do not provide clear, timely, or independently verified information about the assets supporting the stablecoin’s value. In some cases, reserves may consist of a mix of cash, short-term debt, or other financial instruments rather than fully liquid assets.
5.3. Redemption delays or failures.
Such refers to the occurrence where users are unable to promptly convert stablecoins back into fiat currency. These issues may arise due to liquidity constraints, operational bottlenecks, regulatory restrictions, or issuer-imposed limits during periods of high demand. Even if a stablecoin nominally maintains its peg, delays or suspensions in redemption can prevent users from accessing their funds when needed, particularly during times of market volatility.
5.4. Exposure to foreign regulatory decisions.
Such refers to the fact that many stablecoin issuers are regulated in jurisdictions outside the user’s home country. Regulatory actions taken by foreign authorities, such as license revocations, asset freezes, enforcement actions, or changes in legal frameworks can materially affect the issuer’s ability to operate or honor redemptions. Users may have limited legal recourse or consumer protection if such actions occur, especially when laws and enforcement mechanisms differ across jurisdictions.
5.5. Cybersecurity and operational risks.
Such refers to the risks stemming from the heavy reliance of stablecoinsrelated activities on digital infrastructure, including smart contracts, blockchain networks and custodial systems. Cyberattacks, software vulnerabilities, system outages, or internal control failures can result in theft, loss of access, or prolonged service disruptions. Even when backing reserves are adequate, such technical or operational failures may compromise users’ ability to use, transfer, or redeem
their stablecoins effectively. Members of the public are urged to exercise caution when purchasing, holding, or transacting with stablecoins.
- Guidance for business and the public
Members of the public who are unsure whether their activities fall under the VASP Act or any other regulatory framework are encouraged to:
- Seek guidance from the Authority,
- Request formal classification or regulatory interpretation where necessary, and
- Ensure that their activities comply with all applicable legal requirements.
FINANCIAL SERVICES AUTHORITY