On November 24th, the United Kingdom officially gave the green light to the tokenization of investment funds. This initiative is part of a collaborative effort between the TechSprint Group within the Government’s Asset Management Taskforce and the Financial Conduct Authority (FCA), in conjunction with Her Majesty’s Treasury.
Currently, the group has unveiled a comprehensive roadmap for implementing tokenization of funds utilizing Distributed Ledger Technology (DLT) in a report titled “UK Fund Tokenisation: A Blueprint for Implementation.”
Regarding the transformative potential of tokenized funds, Michelle Scrimgeour, Chair of the Taskforce Group and CEO of Legal & General Investment Management, emphasized, “It’s a game-changer for the financial industry, offering efficiency, liquidity, and enhanced risk management while enabling more suitable investment portfolios.”
Meanwhile, FCA CEO Sarah Pritchard stated that the regulatory authority sees no legal barriers to the operational model of tokenization. Therefore, there is a high likelihood that tokenization will support the financial industry in taking a significant leap forward.
The report “UK Fund Tokenisation: A Blueprint for Implementation” details the foundational model for the tokenization process, compatible with existing legal frameworks and regulations. It proposes a phased approach to tokenization.
Specifically, this model allows asset management companies to carry out fund tokenization instantly under specific conditions, such as maintaining traditional investment portfolios and existing valuation and settlement processes.
In the initial stage, tokenization will be applied in a way that aligns with the structures of existing funds, utilizing DLT for transactions such as buying, selling, and maintaining ownership records. FCA-authorized funds will be allowed to tokenize, provided they adhere to specific criteria, such as holding underlying assets and maintaining traditional pricing and settlement schedules, using fiat currency for transactions outside the blockchain while leveraging DLT to maintain transaction records and ownership rights.