The Investment Association, the leading trade body representing the British investment management industry, declared on Friday that investment managers in the United Kingdom have received the green light to develop tokenised funds. In this groundbreaking approach, assets will be subdivided into smaller tokens backed by blockchain technology.
According to advocates within the industry, the tokenisation, or fractionalisation, of funds is poised to streamline the trading of a fund’s assets, making it more cost-effective and transparent. Furthermore, it creates avenues for investors to participate in a broader range of assets.
The Investment Association outlined that funds sanctioned by the Financial Conduct Authority (FCA) can now commence the process of offering tokenised funds, provided the investments involve mainstream assets and uphold the existing valuation and settlement arrangements.
Michelle Scrimgeour, Chief Executive of Legal & General Investment Management, and chair of a collaborative working group with the FCA and Britain’s finance ministry, expressed optimism about the transformative potential of fund tokenisation. She noted, “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.” Other key members of the working group include BlackRock (NYSE:BLK), M&G, and Schroders (LON:SDR).*
At the heart of this development is blockchain technology, renowned for recording ownership of tokens. While historically associated primarily with cryptocurrencies, blockchain is now being harnessed for broader financial applications.
This strategic move aligns with Britain’s post-Brexit initiative to augment liquidity in its asset management sector through regulatory updates. It’s noteworthy that investment managers and exchanges in the United States, Europe, and Asia have already taken preliminary steps towards offering tokenised funds.
