Regulators from Japan and Singapore Collaborate on Crypto Pilot Project

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The Financial Services Authority (FSA) of Japan has formed a collaboration with the Monetary Authority of Singapore (MAS) to jointly regulate and conduct pilot tests for crypto projects as part of Singapore's "Project Guardian" initiative. The FSA's involvement will be limited to an observer role during the project's initial phase.

The regulators' joint efforts aim to assess the viability of utilising digital technologies, such as asset tokenisation, while effectively managing potential financial stability and integrity risks. Ongoing industry pilot projects encompass fixed income, foreign exchange, and asset and wealth management.

Launched by MAS in May 2022, Project Guardian explores the feasibility of deploying asset tokenisation and decentralised finance (DeFi) applications in adherence to regulatory frameworks. The initiative focuses on four key areas: open and interoperable networks, trust anchors, asset tokenisation, and institutional-grade DeFi protocols. 

Within this framework, an outstanding project involves DBS Bank, JP Morgan, and SBI Digital Asset Holdings, who conducted foreign exchange and government bond transactions utilising liquidity pools comprised of tokenised Singapore Government Securities Bonds, Japanese Government Bonds, Japanese Yen (JPY), and Singapore Dollar (SGD).

Additional participants in the project include HSBC, Marketnode, and UOB, who have successfully concluded a pilot test for a blockchain-structured product. UBS is also actively exploring the issuance of Variable Capital Company funds on digital asset networks. The collaboration between FSA and MAS builds upon their previous joint fintech cooperation framework established in 2017, which aimed to foster innovation within their respective markets.

This regulatory partnership follows a recent period of relaxation in Japan's crypto laws. For instance, the country's National Tax Agency recently ruled to exempt token issuers from a 30% tax on unrealised capital gains. Japanese Prime Minister Fumio Kishida has also expressed support for decentralised autonomous organisations and non-fungible tokens as potential contributors to the government's "Cool Japan" strategy, which seeks to leverage web3 technologies.

By teaming up for this pilot project, the FSA and MAS demonstrate their proactive approach to understanding and regulating emerging digital asset technologies. The collaboration aims to ensure that effective risk management measures accompany advancements in the decentralised financial ecosystem. 

As the pilot progresses, regulators will gain valuable insights to shape future policies and promote innovation in the crypto landscape while maintaining financial stability and protecting investor interests.

Shashank is the founder of yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash