As published on aseanbriefing.com, Thursday 26 January, 2023.
Singapore and the United Kingdom recently came to an agreement to deepen bilateral cooperation on fintech and sustainable finance in a move to modernize the regulation of finance for the digital age.
The two countries agreed to the Memorandum of Understanding on the UK-Singapore FinTech Bridge on November 25, 2022, at the seventh UK-Singapore Financial Dialogue held in Singapore. The FinTech Bridge is not a legally binding agreement but rather acts as a structured engagement to cooperate on industry issues, share information, promote innovation, and develop a regulatory framework in the future.
In Asia, Singapore is a leading fintech and sustainable finance power. At the start of 2021, over 40 percent of fintech companies in Southeast Asia were based in Singapore, underscoring its role as ASEAN’s financial center.
As two prominent financial powers, cooperation between Singapore and the UK on fintech and sustainable finance has the potential to influence global policy and regulation of these industries. Here, we look at the key features of the agreement and the implications for Singapore’s emergence as Asia’s preeminent hub for fintech and sustainable finance.
In practice, the FinTech Bridge is a structured engagement between Singapore and the UK to develop policies and share best practices in promoting and regulating fintech.
The FinTech Bridge can therefore be seen as the starting point for the development of a shared regulatory approach between governments that are seeking to preserve fintech innovation and investment while addressing the sector’s lack of regulation and the risks this poses to the financial system. It also seeks to guide the development of sustainable finance by identifying areas for common standards and regulation.
Singapore and the UK discussed collaboration on sustainable finance within the context of the Paris Agreement’s goal of limiting global warming to 1.5 degrees Celsius from pre-industrial levels.
Singapore and the UK agreed to work together on transition finance, including driving international consistency in the design and disclosure of transition plans. They will work with partners such as the UK Transition Plan Taskforce and the Singapore-based Asia Pacific office of the Glasgow Financial Alliance for Net Zero to explore opportunities for collaboration.
The two countries will continue to work with international organizations such as the International Organization of Securities Commissions (IOSCO) and the International Sustainability Standards Board (ISSB) to implement a comprehensive global baseline of sustainability-related disclosure standards. They will also phase in mandatory climate-related financial disclosures.
Singapore and the UK agreed that regulators should continue discussing how to adopt a “global, coherent, and coordinated approach” to regulatory oversight of ESG rates to combat greenwashing and to promote comparable and reliable data. Technology solutes like Singapore’s Project Greenprint will be important to enable such an effort.
Both countries agreed on the need for a globally consistent framework for nature-based disclosures. They also agreed to collaborate to build capacity and understanding of the potential for nature loss and degradation to generate financial risks and cause adverse impacts on business and society. They will do so by engaging with academia based in both countries.
In addition to sustainable finance, Singapore and the UK discussed cooperation on fintech. This conversation took place within the context of an unstable cryptocurrency and blockchain technology market that presents short-term challenges and long-term opportunities.
In connection to crypto assets, Singapore and the UK shared a “strong agreement” on the need to support the safe and risk-managed development of a digital asset’s ecosystem. They discussed the risks and challenges that crypto assets pose to financial stability and compared their respective progress on strengthening consumer protection rules and regulating stablecoins. Both stated their intention to continue to engage with international institutions like the Financial Stability Board (FSB), the Committee on Payments and Market Infrastructures (CPMI), and the IOSCO to help shape global regulation of digital assets.
Finally, the two countries shared updates on other fintech developments. Namely, Singapore shared progress on its review of e-wallet caps and provided updates about new digital banks that have opened in the country.
At its current stage, the UK-Singapore FinTech Bridge has delineated numerous areas for the two countries to collaborate on the development and regulation of fintech and sustainable finance but does not have much in the way of concrete achievements. By the time of the next dialogue, which will be held in London in 2023, it will become clearer whether the FinTech Bridge is resulting in policy progress.
Regardless, the FinTech Bridge is demonstrative of the steadily growing ties between Singapore and the UK since the latter left the European Union and sought closer economic relations with Asia. It is a relationship that has put finance and the digital economy at the forefront.
In early 2022, Singapore and the UK signed the Digital Economy Agreement, which was the first digital-focused trade deal signed by a European country. The deal focuses on advancing digital trade by standardizing systems for e-payments, and e-invoicing, and encouraging participation from small and medium-sized enterprises.
Further, in late 2020, Singapore and the UK signed a Free Trade Agreement, representing the UK’s first FTA with a Southeast Asian country. The free trade agreement cut tariffs, reduced non-tariff barriers, and offered increased market access, including for financial services.
Within the context of the deepening economic relationship between Singapore and the UK, it appears likely that the UK-Singapore FinTech Bridge will set the stage for more cooperation on fintech and sustainable finance in the years ahead. This partnership stands to further strengthen Singapore’s role as Asia’s leading hub for both fintech and sustainable finance.