UK Gives Nod to Investment Fund Tokenization, Embraces Blockchain for Asset Management

The Investment Association, a prominent trade body in the UK, has announced the government’s approval for the tokenization of investment funds, signaling a significant move to incorporate blockchain technology in the asset management sector. This development promises to enhance efficiency, transparency, and global competitiveness in the industry.

The green light for fund tokenization was detailed in the recently published “UK Fund Tokenisation — A Blueprint for Implementation” report. This report, part of the Technology Working Group of the Government’s Asset Management Taskforce, was developed in collaboration with the UK Treasury, the Financial Conduct Authority (FCA), and major investment managers, including BlackRock.

The proposed model allows FCA-authorized funds to integrate tokenization in sales and redemption transactions. To qualify, these funds must adhere to specific criteria, such as limiting their investment portfolios to mainstream assets and retaining traditional valuation and settlement methods.

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

Adding to this, Sarah Pritchard, Executive Director at the FCA, expressed support for the report’s findings, emphasizing the absence of significant regulatory barriers to implementing the proposed tokenization model.

This advancement aligns with recent statements from UK Finance Minister Jeremy Hunt, who announced legislative efforts to bolster the nation’s digital assets sector through the Digital Securities Sandbox initiative. Set to launch in Q1 2024, this initiative aims to promote digital asset adoption in financial markets, complementing the FCA’s Digital Sandbox launched in August to aid early-stage digital product development.

The UK’s commitment to becoming a web3 hub was reiterated in June by Prime Minister Rishi Sunak, who stressed the importance of regulatory clarity for crypto businesses operating in the UK.

Internationally, the UK is not alone in its pursuit of fund tokenization. JPMorgan, alongside various asset managers and crypto projects like WisdomTree and Apollo, is exploring blockchain interoperability for investment-portfolio management as part of Singapore’s Project Guardian initiative. This collaboration seeks to enable fund managers to tokenize, purchase, and rebalance real-world asset positions across multiple blockchain platforms.