British investment managers have received approval to create tokenized funds, marking a shift towards using blockchain technology in mainstream asset management.
The country’s trade body gave the green light on Friday, allowing funds to be split into smaller digital tokens backed by blockchain technology.
The Investment Association announced that funds authorized by the UK’s Financial Conduct Authority (FCA) can begin creating tokenized funds. However, the Investment Association has stipulated these funds must invest in mainstream assets with unchanged valuation and settlement processes.
Michelle Scrimgeour, CEO of Legal & General Investment Management and the chair of a pivotal working group, expressed enthusiasm for the initiative, stating, “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,”
The working group includes influential members like BlackRock (BLK.N), M&G (MNG.L), and Schroders (SDR.L). Their collective effort is geared towards harnessing the benefits of blockchain, a digital ledger primarily used for cryptocurrencies, to enhance the asset management sector.
This initiative aligns with Britain’s broader strategy to revitalize its asset management sector after Brexit, leveraging innovative technologies to enhance liquidity and competitiveness.
Globally, tokenized funds are gaining traction, with regions like the United States, Europe, and Asia already making headway.
A recent report by Calastone, a global funds network, indicated that Asia and the United States are leading this movement. Approximately 39% of firms in the U.S. and 38% in Asia are actively involved in fund tokenization projects, compared to only 27% in the UK and Europe.
The future of tokenized funds looks promising, with a separate survey by Calastone revealing that 67% of U.S. asset managers and 61% in Asia anticipate launching tokenized products within a year. Furthermore, 96% of Asian asset managers expect to tokenize funds within three years, highlighting the global shift towards this innovative investment approach.
As the UK steps into the space of tokenized funds, it joins a global movement that is redefining the landscape of asset management, blending traditional finance with the advancements of blockchain technology for a more efficient and inclusive market.