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UK Approves Tokenization of Investment Funds

A new roadmap for tokenization recommends an initial stage using a permissioned blockchain.

UK Approves Tokenization of Investment Funds

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UK funds have been granted approval to develop tokenization to improve efficiency, transparency, and competitiveness in the sector, according to the representative group for the investment management industry in the UK, The Investment Association.

Through close collaboration with the Financial Conduct Authority (FCA) and HM Treasury, the Technology Working Group of the Government’s Asset Management Taskforce has today published its roadmap for adopting DLT-enabled fund tokenization in its report “UK Fund Tokenisation: A Blueprint for Implementation.”

According to the report, these “digital funds” would represent investors’ interests via digital tokens on distributed ledger technology instead of traditional record-keeping methods.

 “Fund tokenisation has great potential to revolutionise how our industry operates, by enabling greater efficiency and liquidity, enhanced risk management and the creation of more bespoke portfolios,” said Michelle Scrimgeour, Chair of the Working Group and CEO of Legal & General Investment Management.

The blueprint aims to establish infrastructure for fund tokenization in the UK market and recommends a staged approach, starting with a baseline model that complies with current regulations.

In this initial private ledger stage, FCA-authorized funds can tokenize if they meet certain characteristics – for example, holding mainstream assets and maintaining existing valuation schedules and settlement timeframes. Funds would function much like mainstream funds today with off-chain fiat currency settlement while leveraging DLT for transactions and ownership records.

The report mentions that firms may be able to explore public ledgers and interoperability in later stages. The industry will now look at details of further incremental stages, working closely with authorities on any legislative or regulatory impacts.

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