Key Points
- •UK FCA proposes tokenising investment funds to improve efficiency.
- •Tokenisation leverages distributed ledger technology.
- •Initial phase excludes direct crypto-asset holdings.
The UK Financial Conduct Authority has approved the tokenization of investment funds, enabling fund managers to use distributed ledger technology, officially backed by the government's Asset Management Taskforce.
This initiative aims to boost efficiency and transparency, impacting future regulatory and market dynamics as the phased rollout progresses.
The UK Financial Conduct Authority (FCA) alongside HM Treasury has approved an approach to investment fund tokenisation. The initiative will allow FCA-authorized funds to utilize distributed ledger technology for improved operations and transparency.
Michelle Scrimgeour, leading the project, emphasized the transformative potential for the sector. The FCA clarified there are no current regulatory barriers to the model, highlighting industry readiness for change.
Market participants can expect increased operational efficiency, though direct cryptocurrency holdings in authorized funds are restricted for now. The FCA's consultation on crypto assets remains separate.
This move is expected to bolster the UK’s financial sector, maintaining its global competitiveness in asset management while exploring options for eventual integration with crypto-assets.
The FCA’s blueprint delineates record-keeping applications of DLT, emphasizing traditional funds over crypto assets initially.
Future phases may introduce interoperability with public ledgers, potentially affecting assets like Ethereum. Historical precedents from US and EU managers suggest gradual market adaptation.
It’s a game-changer for our industry, offering enhanced efficiency, liquidity, and risk management, as well as enabling the creation of more tailored investment portfolios. - Michelle Scrimgeour, Chair, Technology Working Group; CEO, Legal & General Investment Management