According to FSA official Mamoru Yanase, “the decentralized financial ecosystem continues to grow in complexity, and it is important to address emerging risks.”
The Monetary Authority of Singapore (MAS) and the Financial Services Authority of Japan (FSA) formed a collaboration on June 26 to work together on the regulation and pilot testing of cryptocurrency projects. This collaboration fits nicely with MAS’s “Project Guardian” effort, which intends to investigate the viability of asset tokenization and decentralized finance (DeFi) applications while assuring legal compliance. The FSA’s involvement at this point will be minimal, consisting of an observer role. Regulators wrote:
"The project aims to test the feasibility of applications of digital technologies such as asset tokenization through pilot experimentations, while managing risks to financial stability and integrity. Current industry pilots include fixed income, foreign exchange, and asset & wealth management."
The four main areas of Project Guardian, which was started by MAS in May 2022, are open and interoperable networks, trust anchors, asset tokenization, and Institutional-grade DeFi protocols. The objective is to evaluate these applications’ viability and efficiency within the parameters of appropriate legislation.
Recent results from a pilot test of a blockchain-structured product conducted by HSBC, Marketnode, and UOB show how actively financial institutions are pursuing the possibilities of blockchain technology. UBS is also considering issuing Variable Capital Company funds on blockchain and digital asset networks, demonstrating the growing interest in utilizing these technologies for financial products and services.
The FSA and MAS’s partnership is not the first time the two authorities have worked together. In order to foster innovation in their respective markets, they developed a collaborative fintech collaboration framework in 2017. This continued partnership demonstrates their dedication to maintaining an environment that is favorable for the evolution of financial technology.
The FSA and MAS have partnered up after Japan recently loosened its cryptocurrency regulations. The National Tax Agency of Japan reportedly exempted token issuers from paying a 30% tax on unrealized capital gains on June 25. This choice shows how the government is working to support innovation and expansion in the cryptocurrency sector as well as its acknowledgment of the changing nature of digital assets.
As part of the government’s “Cool Japan” policy, Japanese Prime Minister Fumio Kishida earlier this year declared support for non-fungible tokens (NFTs) and decentralized autonomous organizations (DAOs). The Japanese government intends to use DAOs and NFTs to support cultural activities and spur economic development by recognizing the potential of Web3 technologies.