The City watchdog has set out fresh plans to support tokenisation as it ploughs ahead with its growth agenda.
The Financial Conduct Authority (FCA) unveiled guidance that provides firms and asset managers clarity on how to adopt the technology effectively in order to boost competitiveness and increase the amount of choice for consumers.
Tokenisation allows shares or units in an investment fund to be digitally traded or recorded on a distributed ledger, also known as a blockchain, similar to the technology used for crypto and digital assets.
The move will allow investors to broaden their access to both private markets and infrastructure investments, creating more personalised portfolios.
Meanwhile, the plans also aim to efficiencies and reduce costs for fund managers, by lowering the costs of sharing data between funds involved in operating or distributing the fund.
Simon Walls, executive director of markets at the FCA, said: “Tokenisation has the potential to drive fundamental change in asset management, with benefits for the industry and consumers.
“There are many things that firms can do under our existing rules and more that become possible with the changes we propose enacting now.”
New proposals
The proposals include guidance on operating tokenised fund registers under current FCA rules as well as the creation of an alternative dealing model for fund managers to process the buying and selling of units in authorised funds.
The watchdog also proposed a roadmap to further advance tokenisation, addressing key barriers to investing, such as how to effectively use public blockchains and settle transactions entirely on one.
It also conducted discussions with asset management firms on how tokenisation models could evolve and how regulation may need to change to drive competitiveness among the industry.
The changes to tokenisation come as the FCA moves ahead with its five year strategy, aimed at supporting economic growth.
Part of the agenda included embracing new technologies to become more efficient, while supporting financial services with innovation and investment.
Calls for change
The proposals follow increased calls from financial firms for the FCA to improve its handling of blockchain technology.
Aberdeen Investments, Blackrock and DWS are among firms who have reviewed how tokenisation can improve their businesses in recent months.
The watchdog is also pursuing change in its handling of cryptocurrencies, announcing changes last week which allow retail investors to buy crypto ETFs.
Meanwhile, more UK firms are seeking to be added to the watchdog’s crypto asset register, with investment platform, IG, becoming the first UK broker to be granted a crypto licence earlier this month.
Walls said: “The UK has the opportunity to be a world-leader here and we want to provide asset managers with the clarity and confidence they need to deliver.”