The Technology Working Group (TWG), which is the City Minister’s forum for examining the impact of technology on the UK’s investment and asset management sectors, has published its first report. TWG worked closely with FCA and HM Treasury and focused the first phase of their work on creating a blueprint for implementing fund tokenisation in the UK.
Tokenisation has been recognised by the group as being a revolutionary technology that has the potential to propel the asset management sector forward. It involves the issuing of units that are recorded on a distributed ledger, as opposed to units that are recorded on more traditional systems of record-keeping. TWG believes that making the transition onto this sort of distributed ledger will drive further efficiency and transparency within the sector, improving competitiveness.
The report, or ‘blueprint’, recommends a staged approach to fund tokenisation. The baseline, or ‘stage one’ model establishes the infrastructure for fund tokenisation in the UK funds market. Future stages may then require legislative or regulatory rule changes and may also depend on other developments in the wider technological environment, such as digital forms of money. Examples of ‘future stages’ include:
- The industry developing the details of fund tokenisation, such as working with the FCA to consider the impact on the Handbook rules;
- The industry deciding on the optimal form of digital money for fund settlement; and
- Holding digital security via the Treasury’s Digital Securities Sandbox as opposed to a traditional central securities depositary.