The Financial Conduct Authority (FCA), which regulates financial services firms in the United Kingdom, expressed openness to recent guidelines for tokenized fund offerings. The standards published by an expert industry group indicate initial progress around enabling regulatory-compliant blockchain-based investment products.
A consortium known as the Technology Working Group, established under the UK FCA’s Asset Management Taskforce, proposed several key principles for launching tokenized funds on Friday.
These include mandating authorization from domestic oversight bodies, retaining holdings of traditional assets, and guaranteeing cross-blockchain token transferability.
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Tokenized funds issue shares via crypto tokens
Tokenized funds issue shares via crypto tokens built on distributed ledger technology, allowing fractionalized ownership and exchange. Interoperability ensures investors can migrate tokens across different underlying blockchains seamlessly.
FCA Executive Director of Markets Sarah Pritchard endorsed the framework as an “exciting milestone” in comments included with the announcement. The work stream represents an early exploration of potentially transformative financial use cases applying crypto tokenization.
Last spring, several pilot initiatives had already brought tokenized fund products to market in the UK. Private bank Meltzer trialed tokens underpinning part of a sustainability equity fund’s shares.
Meanwhile, crypto exchange Archax has plans for a compliant token marketplace, having tested representing an external money market fund.
However, the group cautions that key impediments still hamper the broad development of such offerings.
These include unclear regulatory jurisdiction when applying crypto technology to asset management. And some firms encounter difficulty securing basic banking services linked to crypto protocols.