In its effort to ensure that emerging digital asset networks are underpinned by international standards which promote safe and efficient financial market infrastructure, the Monetary Authority of Singapore (MAS) has published a report proposing a framework for designing open, interoperable networks for digital assets.
Titled Enabling Open and Interoperable Networks, the report was jointly developed with subject matter experts at the Bank for International Settlements’ (BIS) Committee on Payments and Market Infrastructure (CPMI), with contributions from participating financial institutions.
Digital assets refer to the digital representation of value, including tokenised real-economy and financial assets such as central bank digital currencies (CBDCs), tokenised bank deposits and potentially well-regulated stablecoins.
The report considers how the CPMI-IOSCO (International Organization of Securities Commissions) principles for financial market infrastructures can be applied to evolving models of digital asset networks. It takes reference from industry pilots launched under Project Guardian — MAS’ collaborative initiative with the financial industry to test the feasibility of applications in asset tokenisation and decentralised finance.
In line with the launch of the report, MAS has also announced an expansion of Project Guardian to test the potential of asset tokenisation across more financial asset classes.
To support this initiative, MAS has established the Project Guardian Industry Group, comprising 11 financial institutions which will lead industry pilots in asset and wealth management, fixed income and foreign exchange.
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In the area of asset and wealth management, pilots range from digital structured products to tokenised investment vehicles. For example, HSBC, Marketnode and UOB have already successfully concluded a technical pilot on the issuance and distribution of a digitally native structured product.
According to MAS, this pilot successfully demonstrated the potential for lower issuance and servicing costs, reduced issuance and settlement times, deeper customisation and broader distribution for participants within the structured product chain.
A further pilot will focus on the issuance of multicurrency and debt and equity linked structured notes under HSBC’s existing issuance programme, tokenised by Marketnode’s multi-asset issuance platform and distributed by UOB for its wealth management activities.
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In the same area, UBS Asset Management is launching a pilot to explore the native issuance of a Variable Capital Company (VCC) fund on digital asset networks. MAS says this pilot will aim to enhance fund distribution and facilitate improved secondary market trading of VCC fund shares, reaping industry-wide operational efficiencies as a result.
Meanwhile, Schroders Investment Management is partnering with Calastone to explore the capabilities of a tokenised investment vehicle which can wrap and issue traditional investment securities, using VCCs. “This could help achieve more cost-efficient investment allocation for retail and institutional investors while simplifying day-to-day operational processing,” says MAS.
In the area of fixed income and foreign exchange, there are pilots in tokenised asset-backed securities, tokenised bonds and tokenised bank liabilities.
Standard Chartered, in collaboration with Linklogis, has developed an initial token offering platform to enable the issuance of asset-backed security tokens listed on the Singapore Exchange S68 (SGX).
“The initial pilot demonstrated the feasibility of harnessing asset-backed tokenisation to enable investors to access yield-generating tokens tied to cash flows from underlying trade finance and working capital loans,” says the Singapore central bank.
Meanwhile, DBS Bank, SBI Digital Asset Holdings, and UBS AG are executing a pilot repurchasing agreement with natively issued digital bonds. This aims to enable greater flexibility, operational efficiency, faster settlement and increased efficiency for cross border distribution and settlement of capital market instruments on digital asset networks, according to MAS.
Finally, Citi is testing the pricing and execution of digital asset trades on a distributed ledger, to leverage ledger data to improve post-trade reporting and analytics.
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MAS has also welcomed the Japan Financial Services Agency (JFSA) as the first overseas financial regulator to join Project Guardian. “This paves the way for MAS and the JFSA to collaborate on digital asset innovation and best practices for asset tokenisation, while safeguarding against risks to financial stability and integrity,” says the Singapore central bank.
Explaining this emerging landscape, Mamoru Yanase, JFSA deputy director-general of the strategy development and management bureau, says: “The decentralised financial ecosystem continues to develop in complexity, and it is important to address emerging risks. On the other hand, blockchain technology including web3 could be a strong driver of innovation in the medium to long term.”
“We look forward to working with MAS, traditional financial institutions and FinTechs to further enhance our knowledge in this area,” he adds.
And while MAS “strongly discourages” and seeks to restrict speculation in cryptocurrencies, MAS deputy managing director of markets and development Leong Sing Chiong acknowledges that there is “much potential” for value creation and efficiency gains in the digital asset ecosystem.
“This is why we are actively collaborating with the industry to foster a responsible and innovative digital asset ecosystem,” he explains. “As we enter this new phase of Project Guardian, we look forward to collaborating with fellow policymakers and industry practitioners to jointly develop effective frameworks to guide the sound development of future financial networks.”
