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UK funds given green light for tokenisation

UK funds given green light for tokenisation

Investment funds authorised in the UK may now be able to progress 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. It is also seen as a way to bring more liquidity to illiquid assets such as real estate. 

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.

Comments: (2)

Paul Webb-Jones
Paul Webb-Jones - Financial Software Limited - London 23 November, 2023, 13:54Be the first to give this comment the thumbs up 0 likes

Trying to understand why this will be better than a share (ETF/Investment Trust) or a Unit (Unit Trust/OEIC) they are mostly very liquid anyway. A REIT become illiquid when there's a run on real estate and they have to cease trading beacuse the underlying commercial real estate assets aren't liquid. How does tokenisation solve that issue? 

Arshad Noor
Arshad Noor - StrongKey - Cupertino 23 November, 2023, 22:231 like 1 like

It does not. Tokenisation is just another method to lure in susceptible consumers into a market, where they can be convinced they are getting in into something akin to Bitcoin.

Blockchain has only one benefit that traditional cryptography does not offer: the ability to chain blocks into an indelible trail (assuming all other implementation details are secure and trustworthy). Bitcoin was merely the creator's "honeypot" to get susceptible people to participate into his/her scheme. Given that so many people appear to want to evade the oversight of law, it isn't surprising that Bitcoin still retains value. But, to conflate that value onto tokens of legitimate assets under the full scrutiny of law is silly; it just goes to prove that there are always some people who can be fooled all the time.