Tokenization Goes Mainstream: UK Investment Association Leads the Way

Across the pond, the United Kingdom’s investment association approved tokenization efforts and revealed its blueprint.

According to a press release by the body, the adoption of distributed ledger technology (DLT) provides several benefits to funds, including security, ease of access, increased market participation from investors, and more.

The DLT will be used for transactions and as a ledger for information storage.

The Tokenization Ecosystem Has Strict Timelines

Via collaboration with HM Treasury and the Financial Conduct Authority (FCA), the UK IA published its blueprint detailing the guidelines for fund tokenization.

The document presented by the working group incorporates emerging technologies such as artificial intelligence and others. It also introduces a compliance framework and an initial launch point for the take-off of the ecosystem.

Per the recommendations of the technology working group, any models should comply with existing laws already in place to regulate financial activities.

The IA will develop industry standards within three months to enable the stability and longevity of such models.

Within three to six months, the FCA and the working group will determine and create money laundering and terrorist financing frameworks to deter criminals from taking advantage of the new model.

The working group will disclose future deployment options of the model after three months, and a decision on the cryptocurrency tokens will occur in 1-2 years.

Per the blueprint, the working group will resolve the questions surrounding the legal ability and requirements for member funds to hold tokenized assets within one to two years.

Firms will participate in creating an innovative securities depository mechanism per decentralized technologies and the auspices of HM Treasury’s Digital Securities Sandbox within nine months and two years, and the adoption of a digital identity solution by the funds will occur in the same period.

HM Treasury will decide on linking tokenization models with the banking system within one to two years.

Asset Tokenization is Gaining Momentum

Financial industry heavyweights have taken an increasingly positive approach towards asset tokenization as an alternative use case for the crypto space rather than the regular use of the tokens themselves.

At the last New York Times DealBook event, Larry Fink, the chairman and CEO of BlackRock, indicated positive sentiment towards tokenization as the future of crypto.

This year, the UK’s financial services sector has been actively pursuing the creation of tokenization ecosystems.

The legal backing to do so already exists to do so.

The Financial Services and Markets Act empowers HM Treasury to deploy financial market infrastructure (FMI) for DLT projects.

The development of the current framework extends the ability of the UK’s financial service sector to create working tokenization models, which is way ahead of the efforts of other Western models.