Reed Smith In-depth

Key takeaways

  • UK Treasury Technology Working Group report provides a blueprint for tokenising UK funds.
  • Report sets out staged approach, baseline model, and key requirements for tokenised funds
  • FCA and market participants found no significant barriers to creating a Stage One tokenised fund, report states
  • Report lists Group recommendations for what is required to realise the benefits of tokenised funds 

In November 2023, the Technology Working Group (the Group) of HM Treasury’s Asset Management Taskforce published an interim report that provides a blueprint for tokenising UK investment funds (the Report). The Report forms part of a wider initiative to harness the potential of innovative technologies, including blockchain and distributed ledger technology (DLT), for the UK asset management industry.

The Group worked closely with other sections of HM Treasury (HMT) and the FCA to produce the Report, which outlines a shared vision for a future funds industry where the full value chain is operated on DLT. The Report sets out a staged approach, starting with a baseline model (Stage One) which establishes the infrastructure for fund tokenisation in the UK funds market and could be used within the existing legal and regulatory framework, before adopting more complex approaches.

What is a tokenised fund?

Also known as digital funds, tokenised funds issue digital tokens that represent an investor’s shares or units in the fund. They are generally recorded and traded on a DLT, such as a smart contract-enabled blockchain, rather than using a traditional system of records. There are a number of variables in how they are tokenised (e.g the type of blockchain used, how record-keeping processes are kept on-chain, how public the ledger is, the distribution channels of the fund). Ultimately, tokenised funds are intended to provide a means of accessing increasingly digitised capital markets, where new and traditional forms of asset are issued and traded using DLT.