MAS to focus on collaboration in regulating digital assets and GenAI

The Monetary Authority of Singapore (MAS) has finalised the regulatory attributes for stablecoins, and is now working on associated legislation while engaging in discussions with issuers, said managing director Chia Der Jiun on Thursday (Nov 7).

Stablecoins are a type of digital currency whose value is typically pegged to another asset class, such as a currency or a commodity like gold.

Speaking at the Singapore FinTech Festival, Chia explained that MAS is ensuring its stablecoin regulatory framework describes the attributes of a “well-regulated, sound stablecoin”, to ensure that “high-quality settlement assets” are put into the ecosystem. 

He noted that the regulator is inviting issuers to comply with these regulations, with considerable interest being seen.

His comments came after MAS announced plans on Monday to advance tokenisation in financial services. These include forming commercial networks to deepen the liquidity of a tokenised asset, and enabling access to a common settlement facility for such assets.

Asset tokenisation refers to the process of creating digital representations of assets on the blockchain. The total market capitalisation of tokenised assets is projected to reach US$2 trillion by 2030, according to a McKinsey report.

Chia, however, noted significant challenges in unlocking this potential and achieving commercial-scale adoption. 

“We have been taking these real issues that the industry tells us need to be solved, and that’s where we focus our attention – on how to solve them,” he said.

MAS’ Project Guardian initiative, for example, brought together more than 40 financial institutions, industry associations and international policymakers across seven jurisdictions, to carry out industry trials on the use of asset tokenisation in capital markets. 

To date, more than 15 industry trials have been conducted in six currencies across multiple financial products.

Keeping a close eye on GenAI

Generative artificial intelligence (GenAI) is another key area that the MAS is navigating, where the regulator and financial institutions are “walking in step with each other”, noted Chia.

“You don’t want them to get too far ahead of the regulator; but you (also) don’t want the regulator to get too far ahead of the industry,” he said. 

Chia explained that MAS had been taking “cautious steps” and a “collaborative approach”, to avoid “coming in too early with regulation that is not quite mature and not quite fully considered”.

Instead of rushing to regulate GenAI, MAS set up an industry consortium called Project MindForge.

The consortium worked on identifying the risk of GenAI, to ensure that all players reach a common level of understanding of the risk.

“The focus and the purpose is to build up capabilities both in the industry and in the regulator; that’s really important,” added Chia.

Currently, MAS is working on developing a set of guidelines for GenAI model risk management, to ensure that the technology is used sustainably and responsibly.

Separately, Chia highlighted that the recent optimism in equity markets is closely tied to a broader deregulatory sentiment. 

Commenting on Donald Trump’s presidential election win in the US on Wednesday, he explained that the expectation of permanent tax cuts and the easing of regulations were contributing to a positive market outlook. 

“For the global economy, potentially, some of these policies can be restrictive on growth, particularly trade policies, and inflationary, but there are other policies that are pro-growth and potentially pro-supply side,” he added.

Collaborative vision

On the importance of collaboration to help achieve Singapore’s fintech vision, Chia noted that MAS started out by encouraging experimentation and innovation in the fintech sector by setting up sandboxes that were largely beneficial. 

“You get to benefit with innovation, one project at a time. Now, we are thinking about how to multiply that and have that benefit at scale,” said Chia. 

He added that such collaboration has been particularly evident in several key areas. For example, it has been seen in sustainability and, more recently, in the digital assets space, which is where MAS is currently focusing much of its attention. 

Industry consortiums, comprising more than 20 financial institutions, as well as industry associations, standard-setting bodies, international organisations, and policymakers, are all coming together to address challenges related to digital assets. 

In a similar vein, in the AI space, a collaborative approach has been essential for the industry to better understand risks and identify common issues that need to be addressed collectively. 

This approach, Chia said, has been instrumental in scaling up the impact of these efforts.

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