A consortium of industry experts released a comprehensive report on Friday, detailing the strategic implementation of fund tokenization—a development that received favorable acknowledgment from a U.K. regulatory authority.
The Technology Working Group, established under the purview of the Asset Management Taskforce led by the Economic Secretary to the Treasury, emphasized the importance of firms ensuring the authorization of their funds by U.K. regulators. Additionally, the report stressed that these funds should hold traditional assets and be designed to seamlessly interface with emerging technologies.
In the realm of tokenized funds, shares are represented as tokens, mirroring investors’ stakes, and are traded and recorded through distributed ledger technology. Interoperability, a key feature discussed, pertains to the capacity to transfer tokens across diverse blockchain networks.
Europe has already witnessed various models of fund tokenization in action. Meltzer Asset Management, a private bank-owned entity, conducted a pilot project this year, issuing tokens for its sustainable growth fund. Archax, a crypto exchange and custody provider, took a similar route by creating a tokenized version of its abrdn money market fund. Notably, Archax plans to launch a regulated exchange dedicated to tokenized assets later this year, as reported by CoinDesk.
The Financial Conduct Authority (FCA) played a supportive role in this initiative, with Sarah Pritchard, the executive director of markets and international affairs at the U.K.’s FCA, expressing enthusiasm in the report. Pritchard described this development as an “exciting milestone” that sets the stage for exploring more transformative use cases in the future.
For a successful launch of tokenized funds, regulatory certainty is deemed crucial by the group. Some firms may need to be registered with the FCA and adhere to its money laundering rules (MLR) when utilizing distributed ledger technology (DLT). The FCA is actively exploring ways to expedite MLR applications for firms already authorized.
The report highlighted a notable challenge—certain tokenization service providers facing difficulties in obtaining banking services. The group urged the government to assess whether additional measures are necessary to address this issue.
Looking ahead, the Technology Working Group plans to further refine its fund tokenization model by the year’s end. Collaborating with regulators, the group aims to assess the legislative impact within a year, showcasing a commitment to ongoing development and regulatory alignment.