The UK Treasury explores the role of tokens in the ‘on-chain’ investment market in a new report.

The UK Treasury has published a new report on potential use cases for fund tokenization, including examining the use of tokens as collateral for money market funds and the role tokenized funds play in “on-chain” investment markets.

A new report from the Treasury’s Technology Working Group on potential use cases for fund tokenization builds on the first report outlining a blueprint for harnessing the potential of innovative technologies such as distributed ledgers for the UK asset management industry.

The Technology Working Group was established by HM Treasury, the government’s economic office, to examine the impact of technology on the UK’s investment management sector. The March 26 report is the second report published by the group (the first was released in November 2023) and expands on the potential use cases for fund tokenization first highlighted in the initial report.

In this context, tokenization refers to the issuance of units that are recorded in a distributed ledger, as opposed to units that are recorded in traditional record-keeping systems. In particular, the report explores the use of tokens as collateral for money market funds and the role tokenized funds play in a fully “on-chain” investment market.

The 30-page report, titled “Further Fund Tokenization: Collaborating to Achieve Investment Funds 3.0”, outlines how the UK funds industry can effectively leverage the potential of tokenization in the asset management sector and helps companies operating in the country We detail how you can adopt a basic tokenization model. .

“Transforming the existing operational infrastructure underpinning investment funds to a distributed ledger will further improve efficiency and transparency within the sector and improve competitiveness,” a government press release said.

The use cases described in the report (money market fund tokens as collateral and tokenized funds purchasing tokenized securities) aim to demonstrate how a tokenization model can improve an enterprise’s business operations.

The UK’s financial markets regulator, the Financial Conduct Authority (FCA), contributed to the report and praised it for raising “important questions about chain permissions, payment processes, digital assets and operational risks” and demonstrating the UK’s commitment to support. Innovation in the technology space.

“New technologies have the potential to fundamentally change the way we manage assets. Sarah Pritchard, Managing Director, Markets and International at the FCA, said:

“We have confirmed that there are no significant legal or regulatory barriers to the industry blueprint for tokenization within the UK, opening up opportunities to implement distributed ledger technology in treasury processes.”

This report is the second report of the Technology Working Group, established in April 2023 under the auspices of the Asset Management Taskforce and supported by the Investment Association, the UK asset management industry trade body. no see.

“We are now on the precipice of a huge technological change. With a reputation for pushing the boundaries of innovation and a world-leading investment management sector, the UK is ideally placed to capture the innovative capabilities of tokenization and apply them to investment funds,” said Bim Afolami MP, Minister of Finance and Economic Affairs. In the preface to the report.

He went on to say that while the group’s first publication, “A Blueprint for Fund Tokenization”, demonstrated the benefits of fund tokenization and that it is compatible with UK regulations, the second report “clarifies the vision of the opportunities that lie ahead.” “I explain,” he said.

A third report is already in the works, and its focus will be exploring how the UK’s investment management sector can capitalize on the opportunities presented by artificial intelligence (AI).

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