The Investment Association (IA) has urged the government of the United Kingdom and the Financial Conducts Authority (FCA) to formulate a regulatory framework that would allow for the tokenization of traditional investment funds in the country with distributed ledger technology (DLT), according to reports on July 7, 2022.
Digital Technologies Essential
Investment Association (IA), a trade body that represents investment management firms in the United Kingdom, has urged the government and the relevant financial regulatory watchdogs in the country to put in place a framework that would make it possible for fund managers to tokenize their funds with blockchain technology.
Established in 2014, IA claims its 270 members manage a combined GBP 9.4 trillion worth of assets and its primary objective is to ensure investment management firms have all it takes to help people achieve their financial goals, while also boosting investors’ resilience to financial challenges.
In a 32-page report entitled “Investing for the Future: Three Potential Paths for a Tech-Powered UK Fund Industry,” the organization noted that the COVID-19 pandemic has significantly boosted the adoption of digital technologies in the country’s financial technology sector and that move has enabled the industry to grow exponentially in the past year.
“In 2021, the UK FinTech sector leaped forward with 217 percent investment growth, and progress that was anticipated to occur decades in the future was instead achieved in a matter of months. Consumers have high expectations around customer service and digital access, alongside a desire for much quicker service delivery,” stated IA, adding “The rapid development of technology and the internet / Web3 will only increase the level of expectations of consumers. We expect that firms will keep up the quickened pace and enhance servicing capabilities and promote digital-first interaction.”
Investment Funds on the Blockchain
Against that backdrop, IA has made it clear that tokenization of investment funds will offer a plethora of benefits to investors and service providers alike, including the more efficient delivery of funds, lower servicing effort, reduced order execution costs, quicker settlements, and more.
The body also stated categorically that the introduction of a funds tokenization framework will enable the United Kingdom’s asset management sector to keep pace with its counterparts in other jurisdictions including the United States and Luxembourg, where tokenized funds are a thing.
“There are many other initiatives underway in all major fund domiciles. The UK is no exception, and after a few false starts, it appears likely that funs tokens will be made available by a small number of investment firms in the UK in the near future. To enable this, policy change may be necessary,” declared IA.
What’s more, in addition to establishing a regulatory framework for the tokenization of investment funds, IA has urged the authorities to create a decentralized finance (DeFi) task force that will be in charge of assessing the implications of the proposed policy on the UK’s fund industry.