Investment funds authorised in the UK may now be able to implement their tokenisation strategies following the publication of the first report from a government-backed industry working group.
The Technology Working Group of the Government's Asset Management Taskforce was convened earlier this year and has now published a roadmap for implementing fund tokenisation, whereby shares in investment funds can be represented as digital tokens on a blockchain.
Tokenisation and the use of distributed ledger technology (DLT) has been seen as a way to make the investment funds industry more efficient and more accessible to investors, firstly by limiting the amount of post-trade processes and intermediaries involved.
It is also seen as a way to bring more liquidity to illiquid assets such as real estate or fine art by enabling fractional shares and potentially encouraging a more active secondary market.
According to the working group, its inaugural report 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.
The funds must meet certain conditions to be eligible for tokenisation. For example, they must comprise mainstream assets and continue to provide valuations and settlements through the same processes and timeframes as conventional funds.
The move has been hailed as a “milestone in the implementation of tokenisation" within the UK’s fund industry by Michelle Scrimgeour, chair of the working group and CEO at Legal & General Investment Management.
"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," said Scrimgeour.
The move has also been welcomed by the Financial Conduct Authority (FCA). "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," said Sarah Pritchard, executive director, markets and executive director, international at the FCA.
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