Singapore-UK partnership to strengthen financial stability via fintech, stablecoins, green finance push

Singaporean and UK regulators are likely to focus on stablecoins’ price stability and redeemability to help offset systemic risk, according to a lawyer. The exchange of information and updates on the regulatory approach to stablecoins will be a particular focus of a new financial partnership which was launched at the sixth UK-Singapore Financial Dialogue, held virtually on June 30.

“The protection of financial stability and systemic risk is paramount to both the UK and Singapore as leading global financial centres. Therefore, they share similar conservative concerns about stablecoins, which are primarily related to price stability and redeemability,” Claire Wilson, partner at Holland & Marie in Singapore.

The evolving regulatory regime for stablecoins was one of the discussion highlights of the virtual meeting, the Monetary Authority of Singapore (MAS) said.

“There are a whole host of issues related to stablecoins which are currently troubling regulators,” Wilson said. “Many regulators consider money laundering and terrorist financing to be the main risks, alongside consumer protection and data protection hazards. The lack of legal certainty and governance surrounding stablecoins are also regarded as problematic. Tax compliance remains high on the list of concerns for many regulators worldwide.”

The two regulators discussed new payment methods and technological developments in digital financial services, as well as outlining their respective regulatory approaches.

“Privacy, cyber security and fraud are some of the key challenges that need to be tackled by regulators to enhance digital financial services,” Wilson said.

The Bank of England presented highlights from its recently published discussion paper on new forms of digital money, while Singapore outlined progress on its review of e-wallet payment limits.

“Both countries will continue to work together through the Global Financial Innovation Network, and explore collaboration opportunities through their respective Bank for International Settlements Innovation Hubs that are hosted in Singapore and London,” the MAS said.

Regulatory cooperation

Singapore and the UK reaffirmed their commitment to effective regulatory and supervisory cooperation and to maintaining safe and open markets to enable participants to trade and manage risks more efficiently between their markets. The two countries discussed possible areas for enhanced collaboration, particularly in cross-border financial regulation.

“The UK will update Singapore on its new regime for marketing of overseas funds and its review of the Solvency II regime for insurance firms,” the MAS said.

The participants also discussed developments related to the worldwide fund management sector, such as the global norm of portfolio delegation, and agreed to maintain a dialogue on these developments.

Green finance

Accelerating green finance and encouraging the development of carbon markets are priorities for both Singapore and the UK, according to MAS.

“Both countries reaffirmed the importance of interoperability of taxonomies to facilitate cross-border sustainable financial flows,” the MAS said, adding that Singapore and the UK will work toward identifying compatibilities in their taxonomy principles and metrics for green and transitional activities.

The two countries discussed the continuing efforts to tackle climate change, and welcomed commitments from financial institutions across the world, including through the Glasgow Financial Alliance for Net Zero.

Regulators in both countries have lent their support to the work carried out by the International Financial Reporting Standards (IFRS) Foundation to release baseline corporate sustainability reporting standards, in collaboration with the International Organisation of Securities Commissions and the Financial Stability Board.

“Both countries will explore collaborating 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,” the MAS said.

Carbon markets

The two countries also recognised the need to conclude a credible and balanced package under art 6 of the Paris Agreement at the 26th United Nations Climate Change Conference, to support the development of carbon markets.

“[They] will encourage the private sector to explore ways to develop a transparent and robust voluntary carbon market for high-quality voluntary carbon credits, such as deepening trading linkages and data-sharing between Singapore and London to enhance interoperability and cross-regional capital flows,” MAS said.

Singapore and the UK had a constructive exchange on the role of voluntary carbon markets in supporting the Paris Agreement.

Singapore launched its Climate Impact X initiative (CIX), an international carbon exchange and marketplace, in May.

Carbon credits under the CIX will be issued for actions taken to reduce, avoid, or remove a certain amount of emissions from the atmosphere; nature-based actions are an important focus of the CIX, according to Tim Power, partner at White & Case in Melbourne.

“The credits can be traded through the CIX exchange by companies that require the credits to complement their emissions reduction initiatives and achieve their net zero ambitions,” Power told Regulatory Intelligence. “If established and functioning properly, the exchange will include quality assurance systems to ensure credits are issued for secured emissions reductions or avoidance initiatives that satisfy additionality tests, and also provide a source of funds for parties engaging in emissions reduction or avoidance activities through the region.”

The creation and trading of carbon credits is intended to complement, rather than to be a substitute for, actions to reduce greenhouse gas emissions, according to Ravi Menon, managing director of MAS.

“It will therefore be one of a number of important tools in the arsenal, along with emissions reduction technology and renewable energy, to achieve net zero emissions,” Power said.

Written by:

Zeng Yixiang, Regulatory Intelligence Correspondent for Southeast Asia, Thomson Reuters

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