Singapore Responds to ‘Strong Interest’ in Asset Tokenization

Singapore’s banking regulator announced plans to promote tokenization in the financial services industry.

The Monetary Authority of Singapore (MAS) said the effort will include deepening the liquidity of tokenized assets by the formation of commercial networks, according to a Monday (Nov. 4) press release.

“MAS has seen strong interest in asset tokenization in recent years, notably in fixed income, FX and asset management,” Leong Sing Chiong, deputy managing director for markets and development at the authority, said in the release. “We are encouraged by the keen participation from financial institutions and fellow policymakers to co-create industry standards and risk management frameworks to facilitate commercial deployment of tokenized capital markets products, and scale tokenized markets on an industry-wide basis.”

The regulator’s 40-member cryptocurrency industry group, Project Guardian, published two frameworks on acceptance and implementation of tokenized assets by financial institutions, the release said.

The two frameworks are the Guardian Fixed Income Framework and the Guardian Funds Framework, per the release. The former will offer guidelines for implementing tokenization in debt capital markets, while the latter will provide suggestions for industry best practices for tokenized funds, including ways to develop tokenized investment vehicles made of multiple assets.

In related news, the Bank for International Settlements (BIS) warned last month that while there are potential benefits to tokenization, there are also risks involved that may differ from those faced by conventional market infrastructures.

“As with existing payment, clearing and settlement systems, the potential capacity of token arrangements to improve financial system safety and efficiency will require sound governance and risk management,” Fabio Panetta, governor of the Bank of Italy and chair of the BIS Committee on Payment and Market Infrastructures (CPMI), said Oct. 21. “The well-known risks of existing systems apply, but these risks may materialize in different ways due to the effects of token arrangements on market structure.”

Tokenization — defined as “the generation and recording of digital representations of traditional assets on a programmable platform” — will require a focus on governance and legal frameworks, custody and operational risks, and credit and liquidity risks.