TechFlow reports, according to Ledger Insights, the Investment Association has published an interim report for the government's Asset Management Taskforce technology working group. The report outlines a blueprint enabling asset managers to engage in fund tokenization on a limited basis, providing a roadmap for broader adoption of DLT and allowing asset managers to capture the full benefits of tokenized funds.
The report assumes funds invest in traditional assets and uses the approach outlined in phase one, under which UK regulatory issues would not generally arise. It also outlines three potential registries that could use DLT: a client registry recording ultimate beneficial owners, a unit register listing principal market investors (institutions), and an asset register. In the first phase of tokenization, asset managers would use permissioned DLT for the unit register. However, the greatest claimed benefits of DLT would come from the other two registers, some of which would require legal changes.
Technically, tokenized funds are cryptoassets, requiring asset managers to register with the FCA for a cryptoasset anti-money laundering license—a typically slow process. Therefore, the FCA is considering how to expedite this for compliant existing firms. Whether DLT can be used for company registration in the UK is a legal question currently under review. Another issue is the requirement to use a Central Securities Depositary (CSD) for listed funds such as ETFs. These matters will be explored within the UK’s digital securities sandbox. Eager to move quickly, the Investment Association is seeking industry input on phase two and beyond later this year.
