On Friday, the Investment Association, the trade body representing the British investment management industry, announced that investment managers in the United Kingdom have been granted approval to develop tokenised funds. In this innovative approach, assets are divided into smaller tokens supported by blockchain technology.
According to industry proponents, the tokenisation, or fractionalisation, of funds is anticipated to facilitate more cost-effective and transparent trading of a fund’s assets. Additionally, it opens up opportunities for investors to engage with a broader spectrum of assets.
The Investment Association stated that funds authorized by the Financial Conduct Authority (FCA) can initiate the process of offering tokenised funds, provided that the investments involve mainstream assets and maintain the existing valuation and settlement arrangements.
“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,” commented Michelle Scrimgeour, Chief Executive of Legal & General Investment Management, who also chairs a working group collaborating with the FCA and Britain’s finance ministry to explore opportunities for tokenised funds. Other members of the working group include BlackRock (NYSE:BLK), M&G, and Schroders (LON:SDR).*
Blockchain technology, known for recording ownership of tokens, is at the heart of this development. Historically associated primarily with cryptocurrencies, blockchain is now being leveraged for broader financial applications.
The move aligns with Britain’s post-Brexit initiative to enhance liquidity in its asset management sector through regulatory updates. Notably, investment managers and exchanges in the United States, Europe, and Asia have already taken preliminary steps in offering tokenised funds.
