In the United Kingdom, investment managers are gaining regulatory backing to harness blockchain technology for the tokenization of funds, moving away from traditional record-keeping systems.
The Investment Association (IA) recently released a report advocating for fund tokenization, which involves issuing tokenized units or shares on distributed ledger technology (DLT). This shift is anticipated to enhance efficiency and transparency in the financial industry.
The adoption of a real-time record-keeping system shared among all stakeholders involved in servicing the fund is expected to decrease fund administration costs, streamline the reconciliation process, and expedite settlement times.
Sarah Pritchard, the executive director of markets and international at the Financial Conduct Authority (FCA), expressed enthusiasm for exploring innovative avenues for asset managers while emphasizing the need to address potential risks.
The UK Fund Tokenisation report, a key outcome of the Technology Working Group of the Asset Management Taskforce, has received approval. The report suggests essential principles for implementing tokenized funds, emphasizing their relevance to both domestic and international investors and discouraging a narrow focus on the investment asset manager industry.
According to the report, opportunities should be extended to a broad range of firms across the sector, avoiding a concentration on specific types of firms, product categories, asset classes, or customer groups. Additionally, the report emphasizes the necessity of a delivery roadmap and a focus on competitiveness and efficiency within the sector.
The report specifies that tokenized funds must be established in the UK, FCA authorized, and adhere to traditional financial industry standards, with legal and regulatory rules remaining unchanged. The UK government expressed its support for this model, underscoring its commitment to fostering innovative approaches within the nation.
In a related development, investment firms in the UK are bolstering their teams dedicated to digital assets. Recent reports indicate that a significant number of asset managers and hedge funds in the U.S., UK, and Europe have hired senior executives to oversee digital asset strategies. According to a survey, 24% of asset management firms have already adopted a digital assets strategy, with an additional 13% planning to do so in the next two years.