Investment managers in the United Kingdom are receiving regulatory backing to embrace blockchain technology for fund tokenization, a departure from traditional record-keeping practices.
A recent report from the Investment Association underscores the potential benefits of fund tokenization, involving the issuance of tokenized units or shares using distributed ledger technology (DLT).
This innovation is anticipated to usher in a more efficient and transparent financial industry.
Fund tokenization would introduce a real-time record-keeping system shared among all parties involved in servicing the fund.
This would result in reduced fund administration costs, simplified reconciliation processes, and faster settlement times.
Sarah Pritchard, the executive director of markets and international at the Financial Conduct Authority (FCA), emphasized the regulator’s openness to exploring innovative avenues while acknowledging the need to address potential risks.
She stated, “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 report also outlines key principles for the implementation of tokenized funds.
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These principles stress the importance of catering to both domestic and international investors, avoiding a narrow focus on the investment asset manager industry, and providing opportunities to a wide range of firms in the sector.
Additionally, the report calls for the creation of a delivery roadmap and a focus on enhancing competitiveness and efficiency within the sector.
It specifies that tokenized funds must be established in the UK, FCA authorized, and compliant with traditional financial industry standards, with no change in existing legal and regulatory rules.
The UK government has expressed its support for this blueprint model, signaling its commitment to fostering innovative approaches within the country’s asset management industry.
The government views this development as a positive step toward advancing technology’s role in asset management and as a testament to the UK’s openness to innovation.
This regulatory support coincides with recent reports of investment firms in the UK strengthening their digital asset divisions.
A significant number of asset managers and hedge funds in the US, UK, and Europe have hired senior executives to oversee digital asset strategies.
According to a survey, 24% of asset management firms have already adopted digital asset strategies, while an additional 13% plan to do so in the next two years, reflecting the industry’s growing interest in digital assets and blockchain technology.
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