Asset Management Taskforce publishes update on UK fund tokenisation
24 November 2023 UK
Image: AdobeStock/noman
The Technology Working Group (TWG) of the Asset Management Taskforce has released a report summarising the first stage of its efforts to apply innovative technologies for the benefit of the UK fund management industry.
The report, entitled UK Fund Tokenisation: a Blueprint for Implementation, outlines a vision for the future of the asset management industry where the end-to-end value chain is managed on distributed ledger technology (DLT) through the tokenisation of investment funds, utilising digital money and digital means of identity.
According to the TWG, this presents a strategic opportunity to advance the transparency, efficiency and international competitiveness of the UK investment sector.
“This provides synergies across the funds industry by linking individual investors at one end with the investible assets at the other, and operating on a robust settlement layer that is secure, trustworthy, and capable of being decentralised,” says the report.
The TWG indicates that it has been working closely with HM Treasury and the Financial Conduct Authority to create a blueprint for implementing tokenisation of UK collective investment funds.
This advises a phased approach to fund tokenisation, initially developing a baseline model that can be applied within existing legal and regulatory frameworks and which will provide an infrastructure for fund tokenisation in the UK collective investments market.
Later stages of this initiative may require regulatory and legislative rule amendments and may be contingent on wider changes in the technology environment, potentially including advances in use of digital money.
The TWG invites industry participants to provide feedback and to help define the direction of the second work phase beginning in late 2023.
Sarah Pritchard, executive director for markets and executive director for international business at the Financial Conduct Authority, says: “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.”
Chair of the Working Group and CEO of Legal and General Investment Management, Michelle Scrimgeour, adds: “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.”
Calastone chief technology officer Adam Belding, the blockchain-powered funds network that was a founding member of the TWG, adds: “To truly transform the process of investing, the industry needs to think about tokenisation not as a new technology, but as a transformative tool to create a frictionless digital marketplace for asset management.
"The blueprint outlined in the report is a practical approach that will foster innovation across the UK funds industry in a more surefooted way, providing a concrete, regulatory-backed foundation for new pilots, enhancing their credibility and likelihood of success," says Belding.
The report, entitled UK Fund Tokenisation: a Blueprint for Implementation, outlines a vision for the future of the asset management industry where the end-to-end value chain is managed on distributed ledger technology (DLT) through the tokenisation of investment funds, utilising digital money and digital means of identity.
According to the TWG, this presents a strategic opportunity to advance the transparency, efficiency and international competitiveness of the UK investment sector.
“This provides synergies across the funds industry by linking individual investors at one end with the investible assets at the other, and operating on a robust settlement layer that is secure, trustworthy, and capable of being decentralised,” says the report.
The TWG indicates that it has been working closely with HM Treasury and the Financial Conduct Authority to create a blueprint for implementing tokenisation of UK collective investment funds.
This advises a phased approach to fund tokenisation, initially developing a baseline model that can be applied within existing legal and regulatory frameworks and which will provide an infrastructure for fund tokenisation in the UK collective investments market.
Later stages of this initiative may require regulatory and legislative rule amendments and may be contingent on wider changes in the technology environment, potentially including advances in use of digital money.
The TWG invites industry participants to provide feedback and to help define the direction of the second work phase beginning in late 2023.
Sarah Pritchard, executive director for markets and executive director for international business at the Financial Conduct Authority, says: “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.”
Chair of the Working Group and CEO of Legal and General Investment Management, Michelle Scrimgeour, adds: “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.”
Calastone chief technology officer Adam Belding, the blockchain-powered funds network that was a founding member of the TWG, adds: “To truly transform the process of investing, the industry needs to think about tokenisation not as a new technology, but as a transformative tool to create a frictionless digital marketplace for asset management.
"The blueprint outlined in the report is a practical approach that will foster innovation across the UK funds industry in a more surefooted way, providing a concrete, regulatory-backed foundation for new pilots, enhancing their credibility and likelihood of success," says Belding.
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