We are working with industry to explore potential uses of fund tokenisation which could make collective investment schemes more efficient, transparent, and accessible to a wider range of consumers.
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There is no formal definition of ‘fund tokenisation’, but generally it refers to representing or turning an investor’s share or unit in a collective investment scheme (or ‘fund’) into a digital token recorded on a smart contract-enabled blockchain, a highly programmable, automated and cryptographically secure database shared between parties. A range of information can in theory be coded into the token, such as details of its ownership and the value of the token’s reference assets.
Asset managers – both in the UK and globally – are exploring commercial use cases for fund tokenisation.
Some have expressed an interest in using private or permissioned blockchains to automate their administrative processes and improve ‘back office’ efficiencies or facilitate interactions between institutional counterparties.
While there is growing industry interest in fund tokenisation, commercial, legal, and technological challenges may inhibit its widespread use. The FCA is working closely with the government, firms, and other market participants to understand emerging technologies, commercial use cases and potential issues with the UK’s legal and regulatory framework.
We are committed to supporting financial services innovation, while continuing to address risks and potential harms to the integrity of the market and to consumers.
Technology Working Group
The FCA and HM Treasury are observers on the industry-led Technology Working Group of the government’s Asset Management Taskforce that is considering the implementation of fund tokenisation in the UK.
The FCA inputted on the development of the group’s November 2023 interim report, and also worked with firms on a high-level assessment of our rules for the Working Group’s baseline approach to fund tokenisation.
In March 2024, the FCA contributed to the Working Group’s Phase 2 report[1]. The report aims to help develop further momentum in the UK market by:
- identifying use cases for fund tokenisation
- examining the likely next stages of development
- testing the use cases identified with industry representatives to establish how they can improve market functioning or consumer outcomes
We will continue to work openly and constructively with this group.
Project Guardian
On 31 October 2023, the FCA announced[2] its participation in the Monetary Authority of Singapore’s (MAS) Project Guardian, a collaborative initiative with the financial services industry on asset and fund tokenisation and decentralised finance.
The FCA is working with the MAS, the Financial Services Agency of Japan (JFSA), and the Swiss Financial Market Supervisory Authority (FINMA) to share knowledge and examine the benefits, regulatory challenges, and commercial use cases of asset and fund tokenisation.
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Contact us
Firms should contact us with queries about fund tokenisation in the UK, for example should they wish to tokenise an existing fund or launch a new tokenised fund. We recommend any authorised fund manager that is considering applying for authorisation of a tokenised fund, or approval for a material change to a fund involving tokenisation, to seek a meeting with us before submitting the application, to present and explain the proposal. This is likely to make the authorisation/approval process more efficient.
For enquiries about the UK’s asset management regime, including the requirements of the FCA’s Collective Investment Schemes sourcebook (COLL) and Investment Funds sourcebook (FUND), email [email protected]. For enquiries about requirements in the Client Asset sourcebook (CASS), email [email protected].