Investment funds authorized in the UK may now advance their tokenisation strategies following the release of the inaugural report from a government-backed industry working group.
The Technology Working Group of the Government’s Asset Management Taskforce, convened earlier this year, has published a roadmap for implementing fund tokenisation. This process involves representing shares in investment funds as digital tokens on a blockchain.
Tokenisation and the use of distributed ledger technology (DLT) are viewed as mechanisms to enhance efficiency in the investment funds industry and improve accessibility for investors. Additionally, tokenisation is anticipated to increase liquidity for traditionally illiquid assets, such as real estate.
The working group’s initial report outlines a baseline model for implementing tokenisation that adheres to the current legal and regulatory framework, enabling investment management firms to put it into practice immediately.
To qualify for tokenisation, funds must meet specific criteria, including the need to consist of mainstream assets and maintain valuations and settlements through the customary processes and timelines used by conventional funds.
Michelle Scrimgeour, chair of the working group and CEO at Legal & General Investment Management, has praised this development as a “milestone in the implementation of tokenisation” within the UK’s fund industry. She emphasized that “fund tokenisation has great potential to revolutionise how our industry operates, enabling greater efficiency and liquidity, enhanced risk management, and the creation of more bespoke portfolios.”
The Financial Conduct Authority (FCA) has also expressed support for the report. Sarah Pritchard, executive director of markets and international at the FCA, stated, “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.”