The Financial Conduct Authority (FCA) has set out plans to enable wider adoption of ‘tokenisation’ in asset management which could enable ‘fundamental changes’ changes in the sector said executive director of markets at the FCA, Simon Walls.
In a consultation the FCA will outline plans to
- create guidance on operating tokenised fund registers under current FCA rules through the UK Blueprint model.
- provide a streamlined, alternative dealing model for fund managers to process buying and selling of units in authorised funds, whether traditional or tokenised.
- deliver a roadmap to advance fund tokenisation and address key barriers like using public blockchains and settling transactions entirely on the blockchain.
- generate discussion on how tokenisation models could evolve and how regulation may need to change.
“Tokenisation has the potential to drive fundamental changes in asset management, with benefits for the industry and consumers,” said Walls, adding
“There are many things that firms can do under our existing rules and more that become possible with the changes we propose enacting now. We stand ready to design the next stage with the industry – this publication suggests a path. 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.”
Tokenisation is a method of digitally representing an asset or its ownership by recording it using distributed ledger technology (DLT), also known as blockchain. DLT is a system that stores transaction records across multiple locations at once, rather than relying on a single, centralised database with security and encryption benefits.
Digital assets have been a discussion point for estate planning practitioners given the limitations of current legislation around the understanding of personal property and assets. Work by the Law Commission recommended the introduction of a third ‘third category’ of property to account for assets which may be capable of attracting property rights even if they do not fit into either of the two categories of personal property that have traditionally been recognised
- things in possession (generally, tangible things) and
- things in action (personal property that can only be claimed or enforced through a court action).
In May of this year the Property (Digital Assets) etc Bill was formally read for the first time in the House of Commons. Given the established test for personal property dates back to the 19th century case of Colonial Bank v Whinney, a time before any concept of digital or electronic assets was even considered, this new third category would ‘unlock’ the development of further common law by ‘removing the uncertainty stemming from Colonial Bank v Whinney’; essentially any legislation will not deal specifically with crypto assets, or any digital assets for that matter, it will create the legal framework for the development of a ‘highly nuanced and flexible approach which is not possible to achieve in statute.’
The FCA said the UK is a leading asset management hub, with around 2,600 firms managing £14 trillion of assets for UK and global clients. The regulator adds it is ‘committed to supporting innovation to help the sector continue to grow.’ Tokenisation is the next step in the way people invest and creating a regulatory framework around it can help asset managers to innovate and stay competitive said the FCA, adding
“Tokenisation also has the potential to broaden access to private markets and infrastructure investment and ultimately help consumers access more cost-effective and personalised investments. It offers further opportunities to improve efficiencies and reduce the costs of fund management, for example, by lowering the costs of sharing and reconciling data between firms involved in operating or distributing the fund.”
