On June 26, Japan’s financial regulator, the Financial Services Authority (FSA), announced a partnership with the Monetary Authority of Singapore (MAS) for the joint regulation and pilot testing of cryptocurrency projects in accordance with the latter’s “Project Guardian” initiative. The participation will be limited to observer capacity for the FSA in its current phase. The 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.”

Established in May 2022 by the MAS, Project Guardian seeks to test the “feasibility of applications in asset tokenisation and DeFi,” in accordance with proper regulations. The project has four areas of focus — open and interoperable networks, trust anchors, asset tokenization and institutional-grade DeFi protocols. In one notable project from the initiative: “DBS Bank, JP Morgan and SBI Digital Asset Holdings conducted foreign exchange and government bond transactions against liquidity pools comprising of tokenised Singapore Government Securities Bonds, Japanese Government Bonds, Japanese Yen (JPY) and Singapore Dollar (SGD).”

Meanwhile, HSBC, Marketnode and UOB have since concluded a pilot test of a blockchain-structured product, while UBS is exploring the issuance of Variable Capital Company funds on digital asset networks. Project Guardian isn’t the first collaboration between the FSA and MAS. In 2017, the two regulators established a joint fintech cooperation framework to promote innovation in their respective markets. 

The collaboration also follows a period of relaxation on crypto laws in Japan. On June 25, Japan’s National Tax Agency ruled to exempt token issuers from a 30% tax on unrealized capital gains. Earlier this year, Japanese prime minister Fumio Kishida said that decentralized autonomous organizations and nonfungible tokens could help support the government’s “Cool Japan” strategy as it explores Web3 usage. 

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