Will tokenisation shake-up the world of asset ownership?
The British regulator, the FCA, is moving fast to bring tokenisation to the £16.5tn UK asset management sector. So what impact can this have? (Eduard Muzhevskyi/Alamy Stock Photo)
When it comes to the forces driving change in the investment industry, we are used to talking at length about AI and geopolitics, and rightly so. But at this year’s Investment Association annual conference, centred on the theme of transformation, a third major topic dominated the agenda: tokenisation.
Tokenisation creates a digital representation of an asset, which can be owned and traded over the blockchain.
“[It] can be the same but better in terms of funds,” Caroline Vincente-Ironside, senior legal counsel specialising in digital assets and tokenised funds at Baillie Gifford, told a conference panel.
“There’s the potential for faster settlement times. There are fewer reconciliations required, [and] the relevant parties are working from that central on-chain source of truth. That provides reduced operational friction and then hopefully reduced costs which they can pass onto investors.”
The British regulator, the FCA, is moving fast to bring tokenisation to the £16.5tn UK asset management sector.
In April it published a new policy statement titled Progressing Fund Tokenisation, including proposing a “direct dealing” model, which would enable investors to trade directly with funds to reduce credit risk. And in May it announced a joint initiative with the Bank of England and the Prudential Regulation Authority to establish the necessary regulation and infrastructure to scale up adoption.
“What’s really exciting is looking at the next stage,” Vincente-Ironside said. “[For example] if you apply common token standards across public chains, that really unlocks a lot of interoperability that we don’t currently have.
For today’s digital-native, crypto-happy investor, asset tokenisation might just be cyberpunk enough to take their fancy, according to BlackRock UK chair Sandy Boss.
“We’re seeing a trend beginning in the US which is to hold a virtual fund [made up of] a shadow of securities in a crypto environment,” she said. “That is not as good as underlying fund ownership.
“If we can tokenise ETFs and funds and other securities, a digital native retail investor will be able to move in and out of crypto with its characteristics, and in and out of funds, which will have underlying security.”
Tokenisation, she says, could have “unbelievable benefits”.
But of course making it increasingly easy for retail investors to buy and sell crypto is something not everyone will describe as an “unbelievable benefit”. We will let our readers choose their flavour on that.