The Financial Conduct Authority has today published plans to support asset tokenisation to “drive innovation and growth in asset management.”

The move could see the regulator allow blockchain-based assets, such as crypto and other liquid and illiquid investments, to be more widely available via tokens.

According to the FCA, its plans could give the UK asset management sector the opportunity to be a "world leader" in tokenisation.

Tokenisation is defined by the FCA as a method of digitally representing an asset or its ownership by recording it using distributed ledger technology (DLT). DLT is a system that stores transaction records across multiple locations at once, rather than relying on a single, centralised database.

The watchdog said its plans would give regulated firms additional clarity to aid adoption of this “new technology.”

The FCA believes that allowing asset tokenisation could help boost the UK’s asset management sector, which comprises around 2,600 firms managing £14 trillion of assets for UK and global clients.

The FCA’s proposals include:

• Guidance on operating tokenised fund registers under current FCA rules through the UK Blueprint model
• A streamlined, alternative dealing model for fund managers to process buying and selling of units in authorised funds, whether traditional or tokenised
• A roadmap to advance fund tokenisation and address key barriers like using public blockchains and settling transactions entirely on the blockchain
• A discussion on how tokenisation models could evolve and how regulation may need to change

The FCA believes the way people invest in future will change and tokenisation – digital representation of assets on distributed ledger technology – can help asset managers to innovate and stay competitive.

It says tokenised products could, “drive competition and increase choice” for consumers as well as open up new ways to distribute funds, including for those new to investing. 

Tokenisation also has the potential to broaden access to private markets and infrastructure investment, it says. It could also help consumers access more cost-effective and personalised investments.

The regulator believes the proposals offer opportunities to improve efficiencies and reduce the costs of fund management, for example, by lowering the costs of sharing and reconciling data between firms involved in operating or distributing a fund.

The FCA has been actively working with the industry to deliver these benefits for asset managers in the UK, it says.

Simon Walls, FCA executive director of markets, said: “Tokenisation has the potential to drive fundamental changes in asset management, with benefits for the industry and consumers.

“There are many things that firms can do under our existing rules and more that become possible with the changes we propose enacting now. We stand ready to design the next stage with the industry – this publication suggests a path. The UK has the opportunity to be a world-leader here and we want to provide asset managers with the clarity and confidence they need to deliver.”

• The roadmap for digital assets has been set out by the FCA in its letter to the Prime Minister on growth. • FCA’s work on fund tokenisation.