The Monetary Authority of Singapore (MAS) is intensifying collaboration with three financial regulators from overseas on legal and policy challenges related to digital assets – including the potential facilitation of industry digital asset pilots using regulatory sandboxes.
The Singapore authority has announced that it is partnering the UK’s Financial Conduct Authority (FCA), Financial Services Agency of Japan (FSA) and Swiss Financial Market Supervisory Authority (FINMA) to advance digital asset experimentation in fixed income, foreign exchange (FX) and asset management products.
The move is part of MAS’s ‘Project Guardian’, which it unveiled almost 18 months ago as a public-private initiative to explore the opportunities and risks of asset tokenisation – the process of digitally representing assets or items of value through a smart contract on a blockchain.
MAS has worked with a growing number of financial institutions – currently totalling 15 in number – to carry out industry pilots on asset tokenisation in the same three (fixed income, FX and asset management) fields. These pilots have, the authority said in its new announcement, demonstrated tokenisation’s potential to bring about ‘significant market and transaction efficiencies’.
With the pilots growing in ‘scale and sophistication’, closer cross-border collaboration among policymakers and regulators is now needed. The FCA, FSA and FINMA are participating in what MAS describes as a ‘Project Guardian policymaker group’, albeit the Swiss authority has ‘observer’ status.
REGULATORY SANDBOXES: EXPLAINED Regulatory sandboxes are controlled environments for companies to test innovative propositions. The first regulatory sandbox was launched by the UK FCA in 2016. MAS launched a sandbox the same year and has since also launched a ‘Sandbox Express’ (in 2019) and ‘Sandbox Plus’ (2022).
The regulators share six overarching objectives, according to MAS’s announcement.
The first and second aims are similar: to advance discussions on the ‘legal, policy and accounting treatment’ of digital assets; and to ‘identify potential risks and possible gaps in existing policies and legislation relevant to tokenised solutions’.
The third aim is to ‘explore the development of common standards for the design of digital asset networks and market best practices across various jurisdictions’; the fourth is to ‘promote high standards of interoperability to support cross-border digital assets development’; and the fifth is to ‘facilitate industry pilots for digital assets through regulatory sandboxes, where applicable’.
The sixth aim is more general: to ‘promote knowledge-sharing among regulators and industry’.
Leong Sing Chiong, deputy managing director (markets and development) at MAS, described the stepping-up of cross-border collaboration as reflecting a “strong desire among policymakers to deepen our understanding of the opportunities and risks arising from digital asset innovation”.
“Through this partnership, we hope to promote the development of common standards and regulatory frameworks that can better support cross-border interoperability, as well as sustainable growth of the digital asset ecosystem,” he said.
RELATED ARTICLE Singapore authority kicks off asset tokenisation experiments – our news article last year (17 June 2022) on the launch of ‘Project Guardian’
Fifteen financial institutions
In its announcement of Project Guardian last year MAS described asset tokenisation as having the potential to boost the efficiency, accessibility and affordability of financial services, increase liquidity in financial markets and help with economic inclusion.
MAS chief fintech officer Sopnendu Mohanty said at the time that ‘learnings from Project Guardian will serve to inform policymakers on the regulatory guardrails that are needed to harness the benefits of DeFi [decentralised finance], while mitigating its risks”.
The 15 participating financial institutions are: ADDX, Apollo Global Management, BNY Mellon, Citi, DBS, Franklin Templeton, HSBC, JP Morgan, Oversea-Chinese Banking Corporation (OCBC), SBI Digital Asset Holdings/SBI Digital Markets, Schroder Investment Management (Schroders), SGX Group, Standard Chartered, UBS AG/UBS Asset Management and United Overseas Bank.
In June 2021 the UK’s then-chancellor (now PM) Rishi Sunak and Singapore’s Tharman Shanmugaratnam (then senior minister and MAS chairman, now Singapore’s president) agreed a ‘financial partnership underpinned by a regulatory co-operation memorandum of understanding (MoU)’. The eighth UK-Singapore Financial Dialogue, held in London in July 2023, saw the countries ‘agree to consider future collaboration opportunities’ in the field of asset tokenisation.
“We are pleased to join Project Guardian,” said the FCA’s executive director of markets and international, Sarah Pritchard. “The UK’s asset management sector, which is the second largest in the world, sees significant potential in the use of distributed-ledger technology to drive innovations, efficiencies and enhanced value for customers. We look forward to working with our global partners to examine the market benefits, regulatory challenges and industry use-cases of asset and fund tokenisation.”