The Monetary Authority of Singapore (MAS) has on Monday announced plans to advance tokenization in financial services.
These include: forming commercial networks to deepen liquidity of tokenized assets; developing an ecosystem of market infrastructures; fostering industry frameworks for tokenized asset implementation; and enabling access to common settlement facility for tokenized assets, according to its statement.
It is noted MAS has, under Project Guardian, convened over 40 financial institutions, industry associations and international policymakers across seven jurisdictions to carry out industry trials on the use of asset tokenization in capital markets.
To-date, more than 15 industry trials have been conducted in six currencies across multiple financial products.
As Project Guardian participants commercialize their products and services following successful industry trials, MAS is facilitating commercialization to take place in a coordinated, networked manner.
By connecting a broader set of participants’ products and services across multiple currencies and assets, greater improvements in capital raising, secondary trading, asset servicing and settlement of tokenized assets may be realized.
This will deepen liquidity across primary and secondary markets for tokenized asset transactions.
To this end, Citi, HSBC, Schroders, Standard Chartered and UOB have formed the Guardian Wholesale Network industry group, with the intent of establishing a multi-member network to commercialize their respective asset tokenization trials and scale usage.
MAS launched the Global Layer One (GL1) initiative in 2023 to foster the development of foundational digital infrastructures, upon which commercial networks could be deployed.
Since the launch, a core group of global banks, BNY, Citi, J.P. Morgan, MUFG and Societe Generale-FORGE have been leading efforts to define the business, governance, risk, legal and technology requirements of the GL1 Platform.
To build on this, GL1 is expanding its scope to support the development of an ecosystem of compatible market infrastructures, enabling tokenized assets to be traded seamlessly across borders.
Specifically, GL1 will undertake the following additional activities: Control Principles, Specifications and Compliance by Design.
Control Principles is an alignment on governance, risk management controls and settlement arrangement conventions for cross border transactions.
This provides clarity on roles, responsibilities and controls needed to safeguard market integrity and financial stability.
Meanwhile, the development of specifications for market infrastructures and asset lifecycle encourages interoperability between diverse systems.
Creation and provision of templates including programmable compliance checks to build an ecosystem of compatible service providers also accelerates onboarding for new participants.
To support these developments, MAS said it is pleased to announce the addition of new industry participants, including Euroclear and HSBC.
GL1 will also set-up a new market infrastructure working group, comprising global financial market infrastructure providers, that will focus on digital asset securities control principles.
To facilitate broad based acceptance and implementation of tokenized assets by financial institutions, two industry frameworks developed by Project Guardian industry group members were published on Monday.
Firstly, Guardian Fixed Income Framework (GFIF) integrates the International Capital Market Association’s Bond Data Taxonomy, Capital Markets and Technology Association’s Token Standards, and the Global Financial Markets Association’s Design Principles for Tokenized Securities.
This provides an industry guide to implementing tokenization in Debt Capital Markets, strengthen industry capabilities and catalyze adoption of tokenized fixed income solutions.
Secondly, Guardian Funds Framework (GFF) provides a set of recommendations for industry best practices for tokenized funds.
This includes the Guardian Composable Token Taxonomy to facilitate development of tokenized investment vehicles comprising multiple assets, simplifying the process of incorporating new tokenized funds, and help achieve efficiencies in fund settlement.
It is noted that Common settlement assets are instruments which are mutually agreed upon by transacting parties to execute financial transactions.
To promote confidence in the settlement of tokenized assets in financial markets, regulated and credible forms of tokenized money are needed as common settlement assets, thereby reducing settlement risk and market fragmentation.
MAS is therefore facilitating financial institutions’ access to common settlement assets including S$ wholesale CBDC for market testing purposes.
The initial test network (SGD Testnet) will offer three key features: settlement facility, programmability and interoperability.
The settlement facility involves issuance, transfer and redemption of S$ wholesale central bank digital currency (CBDC), with potential extensions to other forms of central bank and commercial bank liabilities.
Meanwhile, programmability is automated and conditional triggers for tokenized transactions, including the use of Purpose Bound Money .
Interoperability, on the other hand, facilitate linkages with existing financial market infrastructures.
According to the statement, the SGD Testnet would be made available to eligible financial institutions in Project Guardian and Project Orchid, enabling financial institutions to settle transactions with S$ wholesale CBDC.
The first set of participating financial institutions includes DBS, OCBC, Standard Chartered and UOB.
Participating use cases include payments and securities settlement.
“MAS has seen strong interest in asset tokenisation in recent years, notably in fixed income, FX, and asset management,
“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,” said Leong Sing Chiong, Deputy Managing Director (Markets and Development) of MAS.
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