UK Treasury Encourages Exploration of Tokenization in Fund Management

The Technology Working Group of the UK’s Treasury has recently published a report advocating for the exploration of tokenization in fund management. Tokenization, which involves issuing units recorded on a distributed ledger, offers advantages such as increased efficiency, transparency, and competitiveness over traditional record-keeping systems.

This report marks the second publication from the Technology Working Group, established in April 2023 as part of the government’s Asset Management Taskforce and Investment Association. It delves into the potential applications of tokenization, focusing on its role in fund management.

One key area of exploration highlighted in the report is the use of tokens as collateral for money market funds (MMFs), particularly in non-centrally cleared derivatives. By tokenizing MMFs, the aim is to mitigate settlement delays and alleviate market pressure during crises.

Another area of interest is the incorporation of digital or tokenized securities within tokenized funds. This concept, exemplified by ongoing experiments like Schroders’, enables the creation of composable funds and offers greater customization options for asset managers.

The report invites interested parties to explore these use cases further and encourages collaboration with the Investment Association. Interested participants are urged to reach out by April 26 to contribute to the ongoing dialogue on tokenization in fund management.

In line with these efforts, the UK government is also considering issuing a digital bond (a gilt) within the next six to 12 months. This initiative underscores the government’s commitment to embracing technological innovations in the financial sector and positioning the UK as a leader in leveraging technology for economic growth.

Economic Secretary to the Treasury, Bim Afolami MP, emphasized the UK’s readiness to leverage technology in the investment management industry, highlighting the country’s expertise in innovation and investment. The report reflects the UK’s proactive stance in supporting technological advancements and fostering a conducive environment for pioneering initiatives in fund management.

If you like this law news, share it with a friend!