This article first appeared in Personal Wealth, The Edge Malaysia Weekly on August 26, 2019 - September 1, 2019
As the financial technology (fintech) wave sweeps across the globe, regulators in various parts of the world are witnessing the sector’s rapid growth in their jurisdictions. In Singapore, security token offerings (STOs) — which allow companies to tokenise a wide range of assets — will be the key fintech trend over the next three years, says Singapore FinTech Association president Chia Hock Lai.
So far, exchanges that facilitate these offerings have not only enabled small and medium enterprises (SMEs) to raise funds more easily and efficiently but have also allowed them to securitise a broader range of assets when raising funds from investors. These assets could be anything from a cow or a plot of land to a loan book.
Chia, who is also chairman of the Token Economy Association in Singapore and runs enterprise blockchain consulting firm Switchnovate Pte Ltd, says one of the members of the Singapore FinTech Association has been looking at ways to securitise cows in Myanmar. According to him, the company has created a tamper-proof radio frequency identification (RFID) tag that can be placed on cows so that investors will be able to digitally identify the cows they have invested in. The information on each cow, such as its date of birth and the status of its health, will be recorded on blockchain and, therefore, will be irreversible.
Chia says the company will then value the cows based on certain types of information, such as the market price of the cows and the quality of milk they produce, tokenise these and raise funds from investors.
He has also come across plantation companies that are interested in tokenising their agricultural land as well as a private loan company that is exploring the possibility of tokenising its loan book. “These assets could not be securitised before the emergence of blockchain technology,” he points out.
Chia was speaking to Personal Wealth on the sidelines of the recent “The Future of Fintech in Asean” event, organised by CIMB Asean Research Institute, where he was one of the panel speakers at a session titled “Asean Roundtable Series: Opportunities for Fintech in Asean”.
The first STO in Singapore was completed recently by private securities exchange 1exchange (1X). Singapore-based Aggregate Asset Management raised more than S$5.6 million (RM16.8 million) on the platform by issuing security tokens. The asset management firm was raising capital to expand its business.
Chia says 1X is qualified to be an STO exchange as it holds a recognised market operator (RMO) licence issued by the Monetary Authority of Singapore (MAS). He points out that an entity that does not have such a licence would need to participate in and graduate from MAS’ regulatory sandbox to operate an STO exchange.
In Malaysia, an STO exchange is known as a digital asset exchange. Luno Malaysia Sdn Bhd, Sinegy Technologies Sdn Bhd and Tokenize Technology Sdn Bhd received conditional approval from the Securities Commission Malaysia in June to operate digital asset exchanges in the country.
Libra creatING excitement
The recent announcement by Facebook on the launch of cryptocurrency Libra in 2020 is one of the factors that have contributed to greater public interest in digital tokens and currencies.
If the project takes off, the digital currency can be acquired by Facebook and WhatsApp users to pay for various products and services. The value of Libra is expected to be pegged against a basket of fiat currencies and, theoretically, could be more stable than that of bitcoin. Also, its transaction speed is expected to be faster.
The difference between a digital currency and a security token is that the former functions like money, which is used to pay for products and services, while the latter represents ownership of an asset. In Singapore, digital currencies are regulated under the Payment Services Act while security tokens come under the Securities and Futures Act.
“Facebook is a global technology giant. Its venture into the digital currency space has added credibility to security tokens and spurred investor interest,” says Chia.
He adds that the Singapore Exchange has been preparing itself for the STO trend by investing in 1X and iSTOX, a blockchain-enabled capital market platform developed by ICHX (currently a participant of MAS’ regulatory sandbox). “Singapore is expected to be at the forefront of the digital exchange space as it has the advantage of being a global financial centre and its regulations are clear.”
APIX to empower fintech start-ups and banks in Asean
Chia Hock Lai, president of the Singapore FinTech Association, says the Application Programming Interface Exchange (APIX) is another key initiative that could give the financial technology (fintech) landscape in Southeast Asia a boost.
APIX was launched by the Asean Financial Innovation Network (AFIN) — a collaboration between the Monetary Authority of Singapore (MAS) and the International Finance Corporation (IFC), a member of the World Bank Group. According to APIX’s website, 38 financial institutions across the region are using APIX to boost their innovation capabilities while 89 fintech start-ups are using it to scale up their products and services. It is the world’s first cross-border open architecture platform.
Chia says APIX provides banks with easier access to innovative products and solutions offered by fintech start-ups. By leveraging the technology of open API, any fintech start-up in Asean can offer its solutions on the platform and provide these to banks. “These can be P2P [peer-to-peer financing] or robo-advisory services. These can also be regtech [regulatory technology] solutions that help banks streamline their customer onboarding or certain reporting processes.”
He adds that the platform is beneficial to smaller banks that do not have the financial capability to invest in and develop new technologies and solutions. It is also good for financial inclusion as innovative fintech solutions can be offered to the general public, especially the underbanked population.
“The banks could purchase their solutions [through APIX] and use them in their existing businesses. It is like a consumer buying Microsoft Windows and installing it on his laptop to use,” says Chia.
There are about 3,000 banks in Southeast Asia and about 300 of them have joined AFIN, he adds. “The network starts in Asean, but it aims to slowly include other countries and regions such as India and China. It is all about having more supply and demand.”
Chia says the Singapore FinTech Association recently signed a memorandum of understanding with AFIN to promote the network and APIX to the fintech community in the city state.
Save by subscribing to us for your print and/or digital copy.
P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.