On 26 March 2024, the Technology Working Group – an industry group established by the Government to examine the impact of technology on the UK’s investment management sector – published its second report, entitled ‘Further Fund Tokenisation: Achieving Investment Fund 3.0 Through Collaboration’.
The new report builds on the publication of the Group’s first report in November 2023, and expands the potential use cases of fund tokenisation first highlighted in the initial report. It explores in particular the use of tokens as collateral for money market funds (MMFs) and the role tokenised funds play in a fully ‘on chain’ investment market that will aim to streamline back-office functionality.
Tokenisation refers to the issuing of units that are recorded on a distributed ledger, rather than units that are recorded on more traditional systems of record-keeping. By transitioning the existing operational infrastructure underpinning investment funds onto a distributed ledger, the intention is to drive further efficiency and transparency within the sector and improve its competitiveness.
The report covers:
- Responses to, and developments since phase one.
- Further use cases.
- The next stages for fund tokenisation.
The report concludes by stating that the two reports on tokenisation published by the Group demonstrate:
- That firms can pursue a baseline model of tokenisation in the UK.
- Some use cases for how that model might be applied to firms’ business models (e.g. in improving MMF collateral management).
- What the future evolution of tokenisation in the UK might be.
It also notes that the Group’s collaborative effort with Government, regulators and a wide range of market participants has demonstrated investment fund innovation by first creating the regulatory infrastructure for fund tokenisation in the UK funds market, and then setting out a clear plan for future development.
Bin Afolami, the Economic Secretary to the Treasury, welcomed the progress set out in the report, commenting: “I am delighted to welcome today’s report from the Asset Management Taskforce’s Technology Working Group. As we work to grow the economy, the UK is ideally placed to seize on the transformative capabilities of technology in this industry, combining our expertise in innovation and investment management. This report demonstrates – once again – that the UK is on the side of the pioneers.”
Next steps
The report urges firms to execute their tokenisation strategies or collaborate with peers to advance the emerging use cases with the authorities in a collaborative manner. Anyone that would like to express interest in the second of these actions is asked to express their interest using the email address linked in the conclusion to the report, by 26 April 2024.
For the third phase of its work, the Technology Working Group now plans to shift its focus to how the UK’s investment management sector can harness the opportunities presented by artificial intelligence.