UK investment funds have received the green light to develop and implement tokenisation models, following the release of a report by the Technology Working Group of the Government’s Asset Management Taskforce. The HM Treasury and the Financial Conduct Authority (FCA) collaborated on this initiative, representing a significant milestone for the UK funds industry.

This significant step allows authorised UK funds to explore and potentially integrate tokenisation models, which involve converting assets into digital tokens on a blockchain. The publication of the report, titled ‘UK Fund Tokenisation – A Blueprint for Implementation,’ provides a roadmap for the use of distributed ledger technology (DLT) for fund tokenisation in the UK. The report includes input from HM Treasury and the Financial Conduct Authority (FCA).

Michelle Scrimgeour, Chair of the Working Group and CEO at Legal & General Investment Management, emphasized that this development marks a milestone in the implementation of tokenisation within the UK’s fund industry. She also highlighted the potential benefits of fund tokenisation, such as greater efficiency and liquidity, enhanced risk management, and the creation of more bespoke portfolios.

The Financial Conduct Authority (FCA) welcomed the Working Group’s report, stating that it sets out guidelines on the adoption of tokenisation models within the UK’s current legal and regulatory framework.

UK’s Commitment to Innovation

This announcement comes shortly after UK Finance Minister Jeremy Hunt proposed legislation for the country’s Digital Securities Sandbox, indicating the government’s support for promoting digital assets use in financial markets. The initiative aligns with the UK’s ambition to become a global hub for blockchain and web3 innovation.

Source: The Investment Association

FAQs

What is tokenisation in investment funds?

Tokenisation involves converting real-world assets, such as property or investment funds, into digital tokens on a blockchain. This process allows for improved liquidity, increased accessibility, and enhanced transparency in asset management.

How does the UK government support innovation in digital assets?

The UK government has shown support for digital assets innovation through the proposal of legislation for the Digital Securities Sandbox, aimed at promoting the use of digital assets in financial markets. Additionally, regulatory clarity on stablecoin regulation and initiatives like the Digital Sandbox for early-stage digital assets firms demonstrate the government’s commitment to fostering innovation in the digital assets space.

What are the potential benefits of fund tokenisation?

Fund tokenisation has the potential to revolutionise the fund industry by enabling greater efficiency and liquidity, enhanced risk management, and the creation of more bespoke portfolios. It allows for the seamless adoption of distributed ledger technology (DLT) for fund tokenisation, presenting opportunities for growth and innovation within the industry.