- The UK’s FCA is open to proposals allowing asset managers to tokenize their funds.
- The regulator believes it will enable many younger investors to participate in the market.
The Financial Conduct Authority (FCA) recently made a big move that could change the game in the UK’s capital markets. On Tuesday, it backed the proposals to let asset managers tokenize their funds using blockchain technology.
Tokenized Funds To Attract Younger Investors
According to Reuters, the FCA expects the measure to attract younger and tech-savvy investors. It would allow institutions to convert their traditional funds into digital tokens on the blockchain, which are also called “tokenized funds” or “tokenized securities.”
These tokens represent a fractional or whole ownership of a real-world asset (RWA) held under a fund, such as stocks, bonds, or real estate. Unlike regular funds confined to traditional, centralized clearing systems that people can only trade at limited hours, market participants can exchange tokenized funds on decentralized platforms. This lets traders buy and sell them 24/7, which is a more preferred system by the younger demographics nowadays.
The regulator noted that nearly half, or 47%, of users using mobile apps for trading are between 18 and 34 years old. Besides their convenience, they entice customers with their fractional ownership features, offering lower entry points into owning shares.
The FCA’s Change in Stance on Tokenization
The UK’s FCA is now more open to institutions adopting blockchain than a few years ago. Although it didn’t restrict the technology, it notably enforced strict controls on its use, especially when involving cryptocurrencies.
The UK’s Investment Association, a trade body representing investment managers and firms, called the FCA’s move a “quite a significant stance change.” It believes that the regulators’ support this time around will catalyze more investor and institutional participation.
“Tokenisation has the potential to drive fundamental changes in asset management, with benefits for the industry and consumers,” said FCA Executive Director of Markets Simon Wells during a consultation about the matter.
On the other hand, the FCA cautions about the existing technological limitations of blockchain tech, which could pose certain risks. With that, it urged firms issuing tokenized shares to align their innovation with regulations to ensure consumer protection, maintain market integrity, and prevent market stability risks.
The latest development comes after the recent meeting between US President Donald Trump and UK Finance Minister Rachel Reeves. The event notably led to the UK committing to cooperate with the USA’s crypto ambitions.
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