UK funds given the green light for tokenisation development

UK authorised funds have been given the green light to develop tokenisation, following the establishment of the new Technology Working Group of the Government's Asset Management Taskforce earlier this year to harness the potential of innovative technologies for the UK asset management industry.

Through close engagement with HM Treasury and the Financial Conduct Authority (FCA), the Working Group has today published its roadmap for the adoption of distributed ledger technology (DLT) through fund tokenisation in its report, 'UK Fund Tokenisation - A Blueprint for Implementation'.

Marking a step change in investment fund innovation, fund tokenisation has the potential to improve operational efficiency, transparency, and international competitiveness in the sector. The first stage, outlined today, provides a baseline model for the implementation of tokenisation, that can be used within the existing legal and regulatory framework, and which investment management firms can implement immediately.

In this initial stage, FCA authorised funds can implement a baseline approach to tokenisation, as long as they meet certain characteristics, for example their investment portfolio must comprise mainstream investment assets and continue to provide valuations and settlement through the same processes and timeframes. In this model, tokenised funds would be highly recognisable and consistent with mainstream funds that exist today, while utilising DLT for sales and redemption transactions and acting as the register of holders.

Michelle Scrimgeour, Chair of the Working Group and Chief Executive Officer at Legal & General Investment Management, said:

“Today marks a milestone in the implementation of tokenisation within the UK’s fund industry. Fund tokenisation has great potential to revolutionise how our industry operates, by enabling greater efficiency and liquidity, enhanced risk management and the creation of more bespoke portfolios.

“The partnership and collaboration between the investment management industry, the FCA and HM Treasury has created strong momentum for change, which is essential to deliver the innovation we need. It is vital the UK remains at the forefront of technological development. In my role as Chair, it has been a real pleasure to see the breadth and depth of expertise the UK has to offer in adopting and leveraging the technology that we believe will underpin the next generation of asset management.”

Sarah Pritchard, Executive Director, Markets and Executive Director, International at the FCA said:

“At the FCA we are committed to helping strengthen the UK’s position in global wholesale markets and want to embrace the opportunities presented by new technology and innovation. We welcome the report today which identifies a way forward for tokenisation and has concluded that there are no significant regulatory barriers to the adoption of the proposed baseline model. We look forward to continuing our close collaboration with the industry as this work progresses.”