Investors representing trillions of dollars in assets have published a new roadmap for fund tokenization approved by the UK government.
In a new report, The Investment Association – a working group with more than $11 trillion in assets under its management – lays out its plan to implement tokenized funds or funds with digitized shares that trade on blockchains.
“[Tokenized funds] issue tokenized shares or units to represent the investor’s interest in them and are generally traded and recorded on a distributed ledger rather than in a traditional system of records…
Ultimately, tokenized funds are intended to provide a way to interact with increasingly digitalized capital markets, where both traditional and potentially new forms of asset classes are issued and traded using DLT (distributed ledger technology).
According to the Investment Association, the tokenization of funds is clearly separate from other digital assets, such as crypto tokens and non-fungible tokens (NFTs).
“While some of these developments are still ongoing, and tokenization in other areas (such as equities and other investable assets) is dependent on further work, now is the ideal time for the fund industry and UK authorities to take advantage of the opportunity to establish the fund tokenization infrastructure for the UK funds market.
The discussion of DLT and tokenization is sometimes confused or conflated with cryptocurrencies and non-fungible tokens (NFTs), given their origins in digital asset technology itself. An investigation into the use of cryptocurrencies, NFTs and other unsupported crypto assets within investment portfolios is beyond the scope of this report.
With few exceptions, the investment management industry has taken a cautious approach to the adoption of unbacked crypto assets as an asset class, given the perception of risk and volatility, and several well-publicized recent incidents that have called into question the integrity of the broader market drawn.
Fund-level tokenization simply seeks to leverage the benefits of the underlying technology and does not automatically provide such exposure (unless the fund itself invests in unbacked crypto assets). Using the technology and the concept of tokenization is therefore different from exposure to unbacked crypto assets.”
In a statement, Sarah Pritchard, executive director of the UK’s Financial Conduct Authority (FCA), said the government welcomed the report.
“We welcome this report on fund tokenisation from the Technology Working Group under the Asset Management Taskforce, of which the FCA is an observer and has supported, and which represents the first phase of a pioneering workstream to identify and articulate the benefits of innovation in technology for investors and the wider asset management industry.”
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Featured image: Shutterstock/Sabura/Natalia Siiatovskaia