HMT and MAS Forge Partnership for Financial Services Cooperation
MAS and Bank of France (BDF) successfully completed a wholesale cross-border payment and settlement experiment using central bank digital currency (CBDC). Additionally, HM Treasury, or HMT, and MAS announced the launch of a new Financial Partnership at the sixth UK-Singapore Financial Dialog. The Partnership is backed up by a memorandum of understanding that aims to reduce friction for firms serving UK and Singapore markets by recognizing that each other’s financial services regulatory regimes achieve similar outcomes. UK and Singapore will explore opportunities for greater financial cooperation, including enhanced information sharing, closer cooperation in international fora, accelerating green finance, and cyber-security cooperation. The next Financial Dialog is expected to take place in 2022.
MAS-HMT Partnership. As part of the key results of this dialog, an industry-led UK-Singapore business roundtable will convene on July 01 to discuss approaches and potential cross-border collaboration in supporting the transition toward low-carbon and scaling voluntary carbon markets. The two countries also signed a memorandum of understanding to enhance bilateral cyber-security cooperation, including the sharing of cyber-related information and supervisory best practices. The following are the other key highlights of the dialog:
- Discussed possible areas for enhanced collaboration, particularly in cross-border financial regulation.
- UK to update Singapore on its new regime for marketing of overseas funds and its review of the Solvency II regime for insurance firms
- Discussed developments related to the global asset management industry, including the global norm of portfolio delegation, and agreed to maintain a dialog on these developments
- Discussed ongoing efforts to tackle climate change and reaffirmed support for mandatory climate-related financial disclosures aligned with the Task Force for the Climate-related Financial Disclosures (TCFD) recommendations
- Both countries to explore collaboration on a biodiversity pilot study, which will inform research into how nature-related risks will affect the financial system and contribute to this area of growing importance
- Recognized the need to conclude a credible and balanced Article 6 package of the Paris Agreement at the COP26, to support the development of carbon markets
- Discussed global developments and the evolving regulatory regime for stablecoins, and agreed to exchange regular updates on their respective regulatory approaches
MAS-BDF Experiment. In another recent development, MAS and the Bank of France (BDF) announced the successful completion of a wholesale cross-border payment and settlement experiment using central bank digital currency (CBDC). The experiment, supported by J.P. Morgan’s Onyx, simulated cross-border transactions involving multiple CBDCs (m-CBDC) on a common network between Singapore and France. This is the first m-CBDC experiment that applied automated market making and liquidity management capabilities to reap cross-border payment and settlement efficiencies. This experiment is also one of the last of BDF’s wholesale experiment programs, which will be achieved by Fall 2021. The experiment simulated cross-border and cross-currency transactions for SGD CBDC and EUR CBDC; it was conducted using a permissioned, privacy-enabled blockchain based on Quorum technology and the following four key outcomes were achieved:
- The demonstration of interoperability across different types of cloud infrastructure. Blockchain nodes were set up across private and public cloud infrastructures in both countries.
- The design of a common m-CBDC network that enabled the two central banks to have visibility on cross border payments, while retaining independent control over the issuance and distribution of their own CBDC.
- The setup of an experimental m-CBDC network that incorporated automated liquidity pool and market-making service for EUR/SGD currency pairs. The use of smart contracts automatically managed the EUR/SGD currency exchange rate in line with real-time market transactions and demands.
- The simulation of an experimental m-CBDC network that showed that the number of correspondent banking parties involved in the payment chain for cross-border transactions can be reduced. Consequently, the number of contractual arrangements, the Know Your Customer (KYC) burden, and the associated costs could be cut down.
Keywords: Europe, Asia Pacific, UK, Singapore, Banking, Cyber Risk, Carbon Markets, Disclosures, Climate Change Risk, TCFD Recommendations, ESG, Sustainable Finance, Taxonomy, MoU, MAS, HM Treasury
Michael Denton, PhD, PE
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
Credit analytics expert helping clients understand, develop, and implement credit models for origination, monitoring, and regulatory reporting.
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