The UK has launched new proposals for asset managers to tokenise their funds, marking its latest effort to allow companies to use blockchain technology in a bid to remain globally competitive.
The Financial Conduct Authority on Tuesday unveiled proposals for fund tokenisation that would bring the UK into line with Ireland and Luxembourg, countries that are hubs for fund administration.
Tokenised funds are digital representations of an investor’s interest in a fund and are held on a blockchain, the technology that underpins cryptocurrencies.
Proponents say that tokenising funds would make trading faster and cheaper, as well as reducing settlement times from days currently to minutes, thereby reducing capital requirements and lowering risks. Large asset managers such as BlackRock, Aberdeen and Franklin Templeton are exploring tokenising their funds.
The FCA’s proposals come as the regulator prepares to launch a full regulatory framework for the crypto market next year. The UK has faced calls to be more open to the digital assets sector as the US has embraced crypto under Donald Trump, and the EU’s landmark crypto rules came into force this year.
The FCA is proposing to allow the use of a “direct to fund” model for asset managers. Currently, end investors pay their investment manager who then sends the money into a fund. Under the proposals, end investors would pay into a fund directly. The regulator said giving asset managers the option to manage in this way would make it easier to tokenise funds, as investors would be able to monitor their holdings directly on the blockchain.
The direct to fund model has been championed by the UK’s Investment Association trade group, which says it would simplify fund managers’ operations and improve efficiencies.
The regulator said it had no objection to investors using public blockchains, which are open and accessible by all, as long as managers were considerate of data privacy issues. It also laid out how companies should manage network risks and controls when issuing tokens on a blockchain.
“This technology will offer some really practical benefits to make fund management more efficient and reduce costs over time,” said Nike Trost, interim buy-side director at the FCA.
So far, the key source of demand for tokenised money market funds in particular has come from crypto traders, who are increasingly using them as an alternative to stablecoins, as they can earn a yield by holding the funds. The FCA said it supported the use of tokenised money market funds for collateral but said they must remain liquid and safe in order to ensure access during downturns.
Amarjit Singh, digital assets leader at EY for UK and Ireland, said the move was important for the UK’s asset management industry, “which is under increasing pressure to innovate in a competitive global landscape, where recent progress has been seen in jurisdictions such as Luxembourg, the US and Singapore”.
The FCA is seeking comments on its proposals by mid-December.
Read more on Financial Times News
