The Financial Conduct Authority has set out plans to support tokenisation in asset management.
In a consultation paper published on 14 October, the FCA said tokenisation has the potential to drive innovation and growth in asset management, with benefits for the industry and consumers.
The UK is a leading asset management hub, with around 2,600 firms managing £14 trillion of assets for UK and global clients.
The regulator said tokenisation – where an investor’s share in a fund is represented as a digital token – can help drive competition and increase choice for consumers, as well as open up new ways to distribute funds.
It has the potential to broaden access to private markets and infrastructure investment and ultimately help consumers access more cost-effective and personalised investments.
Furthermore, the FCA said it offers opportunities to improve efficiencies and reduce the costs of fund management, for example, by lowering the costs of sharing and reconciling data between firms involved in operating or distributing the fund.
The FCA’s proposals include guidance on operating tokenised fund registers under current FCA rules through the UK blueprint model; a streamlined, alternative dealing model for fund managers to process buying and selling of units in authorised funds, whether traditional or tokenised.
In addition, it proposes a roadmap to advance fund tokenisation and address key barriers like using public blockchains and settling transactions entirely on the blockchain.
Lastly, it proposes a discussion on how tokenisation models could evolve and how regulation may need to change.
Simon Walls, executive director of markets at the FCA, said: “There are many things that firms can do under our existing rules and more that become possible with the changes we propose enacting now. We stand ready to design the next stage with the industry – this publication suggests a path. The UK has the opportunity to be a world-leader here and we want to provide asset managers with the clarity and confidence they need to deliver.”
Allan Trimmer, head of alternatives product at Aberdeen, welcomed the proposals: “Aberdeen is hugely supportive of the FCA’s intention to add clarity to the use of fund tokenisation helping support innovation while protecting consumers.
“The consultation covers a number of areas that are critical to maintaining progress around tokenisation within asset management, including the need for standardisation around the issuance and use of tokens, exploring the use of stable coins to drive greater speed and efficiency of transactions and examining the forward looking stages of tokenisation which have the potential to shape the end-to-end Investment Management lifecycle of the future.
“Making sure these aspects deliver better outcomes for clients is central to our thinking and we look forward to participating in the consultation.”
