$11,000,000,000,000 Investor Group Backed by UK Government Publishes Plan for Fund Tokenization

Investors representing trillions of dollars in assets have published a new roadmap for fund tokenization approved by the government of the UK.

In a new report, The Investment Association – a working group with over $11 trillion with 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 a traditional system of records…

Ultimately, tokenized funds are intended to provide a way to interact with increasingly digitized capital markets, where both traditional and potentially new forms of asset class are issued and traded using DLT (distributed ledger technology).”

According to the Investment Association, fund tokenization is distinctly separate from other digital assets, such as crypto tokens and non-fungible tokens (NFTs).

“While some of these developments are still in-flight, and tokenization in other areas (such as equities and other investable assets) is dependent on further work, it is now the ideal time for the funds industry and the 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 origin in the digital asset technology itself. An investigation into the utilization of cryptocurrencies, NFTs and other unbacked crypto assets within investment portfolios is out of the scope of this report.

With a few exceptions, the investment management sector has taken a cautious approach to the adoption of unbacked crypto assets as an investment class given a perception of risk and volatility, and several well-publicized recent incidents that have questioned the integrity of the broader market.

Tokenization at the fund level simply seeks to leverage the benefits of the underlying technology and does not automatically provide such an exposure (unless the fund itself invests in unbacked crypto assets). Utilizing the technology and the concept of tokenization is therefore distinct from becoming exposed to unbacked crypto assets.”

In a statement, Sarah Pritchard, the Executive Director of the UK’s Financial Conduct Authority (FCA), says that the government is welcoming of the report.

“We welcome this report on fund tokenization from the Technology Working Group under the Asset Management Taskforce, which the FCA is an observer of and has supported, and which forms the first stage 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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