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UK's FCA endorses Investment Association's fund tokenisation model

The report says fund tokenisation will make the financial industry more efficient by reducing administration costs and allowing quicker settlements

Shashank Bhardwaj
Published: Nov 28, 2023 05:07:44 PM IST

UK's FCA endorses Investment Association's fund tokenisation modelImage: Shutterstock

On November 24, the United Kingdom’s Financial Conduct Authority (FCA) welcomed a blueprint model developed by the Investment Association (IA) to facilitate the tokenisation of funds for asset management firms.

The Investment Association (IA) is a UK trade body representing Investment Managers and Investment Management Firms. It represents over 250 corporate members, who collectively manage over £7.7 trillion for their clients in the UK and worldwide.

The FCA’s endorsement of the IA’s Fund Tokenisation blueprint indicates regulatory support for UK investment managers to use blockchain technology for fund tokenisation. This move marks a departure from traditional record-keeping systems and opens doors for embracing innovative approaches within the industry.

The report suggests that fund tokenisation, which involves issuing tokenized units or shares using distributed ledger technology (DLT), will make the financial industry more efficient and transparent. Not only will it reduce administration costs, but it will also allow quicker settlements.

The blueprint recommends a staged approach to fund tokenisation, starting with a basic model that can be implemented within the current legislative and regulatory framework. Subsequent stages of the blueprint may necessitate legislative or regulatory changes.

The Investment Association aims to foster a smooth and controlled transition towards fund tokenisation by adopting a phased approach. It will ensure the industry can effectively adapt to evolving technologies while maintaining regulatory compliance and investor protection.

Sarah Pritchard, executive director of markets and international at the Financial Conduct Authority (FCA), said, “This is an exciting milestone and paves the way for exploring more transformative use cases in the future. We want to support firms to implement technological solutions which enhance and strengthen the UK’s asset management industry, while addressing risks and potential harms.”

The UK Government too showed support, "The government welcomes this publication. It will advance the wider conversation on the role of technology in asset management, and signals that the UK is welcoming of innovation and open for the exciting new business of the future."

There are several different models for fund tokenisation in continental Europe, with a lot of them ongoing experimentation. Private bank-owned Meltzer Asset Management issued tokens for its German-domiciled sustainable growth fund in a pilot this year. The controlled distribution pilot took place on a public chain with a restricted participant list.

The adoption of fund tokenisation worldwide is expected to impact the asset management industry significantly. It could lead to the development of new tokenised fund products and a shift towards a more distributed digital asset management ecosystem.

The writer is the founder at yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash