The evolving blueprint for UK fund tokenisation______

Adam Belding, Chief Architect

In the dynamic landscape of the investment fund industry, the march towards digital transformation continues to gain momentum. Earlier this week the Technology Working Group of the Asset Management Taskforce, a group that Calastone is a member of and key contributor to, published its second report “Further Fund Tokenisation: Achieving Investment Fund 3.0 Through Collaboration“. This new report further outlines a vision for where the funds industry in the UK transcends its traditional bounds through the integration of Distributed Ledger Technology (DLT) and tokenisation.

The report builds on the foundational work of the first report “UK Fund Tokenisation: A Blueprint for Implementation,” published in November, offering insights into the evolving landscape of fund tokenisation and its potential to revolutionise the investment sector. This blueprint provided a regulatory-compatible model for tokenising UK investment funds, emphasising a phased approach to adoption that aligns with existing legal and regulatory frameworks. This model underscores the transformation of the fund industry into a more efficient, transparent, and digitally-enabled sector, promising enhanced services for investors and a streamlined operational infrastructure for fund managers.

Calastone is spearheading these initiatives, underscoring our commitment to innovation and our belief in the transformative potential of DLT. Our Digital Investments platform exemplifies this commitment, facilitating a seamless, efficient, and secure environment for tokenised investment vehicles.

The second report delves deeper into the practical application of tokenisation and DLT in the asset management space.  By addressing the “asset register” it points out the significance of enabling funds to not only operate on a tokenised fund register, but also starts to consider the other part of a fund, it’s assets.  By applying DLT to the management of the IBOR, ABOR, and CBOR, truly transformational opportunities begin to present themselves.  The ultimate outcome could be a vehicle that directly invests in tokenised underlying assets, seeing a fund transform into a new type of collective investment that directly holds ownership of tokens which could natively represent equity, fixed income and other asset types. This integration facilitates the seamless movement and management of assets in a digital format, leveraging the efficiency and transparency afforded by DLT.

One of the other standout features of the report is its exploration of using digital money as the settlement mechanism, which underscores the movement towards a fully integrated digital financial ecosystem. Additionally, the report addresses the innovative use of tokenised money market fund units as collateral, particularly in the context of the UK’s regulatory framework for non-centrally cleared derivative contracts. This aspect highlights the potential for tokenised assets to play a pivotal role in the broader financial market, extending beyond the primary investment sphere to influence liquidity and collateral management practices.  It also shows how rather than the traditional finance ecosystem seeing the blockchain ecosystem as the space to move into, there are also many use cases where the evolving blockchain ecosystem can benefit from access to financial services from the existing ecosystem.

Working alongside the other members of the tech working group it is encouraging to see such positive collaboration within the industry, as all members recognise that the journey towards ‘Investment Fund 3.0’ is a collective endeavour. Success requires continued engagement between the government, regulatory bodies, technology businesses such as Calastone and the investment sector to foster an environment conducive to shared innovation and growth. The proposal for a digital issuance of a UK government gilt and the review of fund tokens’ eligibility for tax-advantaged products like ISAs are testament to the progressive steps being taken towards a digitally-enabled future.

As we stand on the brink of a new era in investment management, Calastone remains dedicated to leading the charge towards a digital future. Our efforts, in concert with those of the wider industry and regulatory bodies, are setting the stage for an investment landscape that is more inclusive, efficient, and aligned with the needs of modern investors. The path to ‘Investment Fund 3.0’ is paved with innovation, collaboration, and a shared vision for a better, more digitally-integrated future for all stakeholders in the investment fund industry.

Adam Belding, Chief Architect


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