1、UK FUND TOKENISATION:A BLUEPRINT FOR IMPLEMENTATIONInterim Report from the Technology Working Group to the Asset Management TaskforceNovember 20232ABOUT THE INVESTMENT ASSOCIATION(IA):The Investment Association champions UK investment management,supporting British savers,investors and businesses.Our

2、 250 members manage 8.8 trillion of assets and the investment management industry supports 126,400 jobs across the UK.Our mission is to make investment better.Better for clients,so they achieve their financial goals.Better for companies,so they get the capital they need to grow.And better for the ec

3、onomy,so everyone prospers.Our purpose is to ensure investment managers are in the best possible position to:Build peoples resilience to financial adversity Help people achieve their financial aspirations Enable people to maintain a decent standard of living as they grow older Contribute to economic

4、 growth through the efficient allocation of capital.The money our members manage is in a wide variety of investment vehicles including authorised investment funds,pension funds and stocks and shares ISAs.The UK is the second largest investment management centre in the world,after the US and manages

5、37%of all assets managed in Europe.3UK FUND TOKENISATION:A BLUEPRINT FOR IMPLEMENTATIONCONTENTSForewords 4 Foreword by Sarah Pritchard,Executive Director,Financial Conduct Authority 4 Foreword by Michelle Scrimgeour,Working Group Chair 5Executive Summary 6 Summary of Recommendations 61.Context and b

6、ackground 8 The Technology Working Group 8 Fund tokenisation 10 Connecting with wider cryptoassets work 12 Role of AI 142.A Shared Vision 15 Benefits 15 The Vision 16 A Staged Approach 18 Stage One characteristics 18 Stage Two and beyond 193.The Blueprint for Implementation 20 A:Utilising Stage One

7、20 1.Regulatory certainty for UK fund tokenisation 20 2.Foster DLT innovation across UK investment management industry 20 3.Money Laundering Regulations Registration Process 21 B:Utilising Future Stages 23 4.Industry to develop the details of further stages of fund tokenisation 23 5.Availability of

8、digital forms of money to settle transactions 23 6.Legal considerations for investible assets 24 7.Central Securities Depositary requirements and evolution of responsibilities 25 8.Availability of digital identity 26 9.Availability of Banking Services 26Conclusion 27Group Membership/Acknowledgements

9、 28 Members of the Tech Working Group 28 Observers from Government Departments and Regulators 28 Acknowledgements 28Endnotes 29THE INVESTMENT ASSOCIATION4FOREWORD BY SARAH PRITCHARD EXECUTIVE DIRECTOR,MARKETS AND INTERNATIONAL,FINANCIAL CONDUCT AUTHORITYThe digitalisation of financial services is ch

10、anging how consumers make decisions and markets operate.At the FCA we are committed to taking forward work to strengthen the UKs position in global wholesale markets and to embrace the opportunities presented by new technology and innovation.To that end,we welcome this report on fund tokenisation fr

11、om the Technology Working Group under the Asset Management Taskforce,which the FCA is an observer of and has supported,and which forms the first stage of a pioneering workstream to identify and articulate the benefits of innovation in technology for investors and the wider asset management industry.

12、The group has identified a limited blueprint model for tokenisation,which firms in the UK could follow to develop and pilot their own use cases.The approach offers potential improved operational efficiencies,primarily through the automation of certain back-office functions.When we asked earlier this

13、 year for feedback on the areas that should gain regulatory focus in the next few years via our asset management discussion paper external stakeholders were clear that there should be regulatory focus to support technological innovation so that markets can adapt and innovate to achieve long-term imp

14、rovements in the way that markets and their participants function,while ensuring appropriate levels of consumer protection.I am pleased that we are already doing so via this work,which has concluded that there are no significant regulatory barriers to adoption in the context of industrys blueprint m

15、odel for tokenisation.Detailed work has been done to assess potential barriers across our Collective Investment Schemes sourcebook(COLL),Investment Funds sourcebook(FUND)and Client Assets Sourcebook(CASS),with no significant hurdles identified.The use of blockchain networks,a type of distributed led

16、ger technology in the operation and administration of collective investment schemes is a clear opportunity in this space that we are open to exploring further.This is an exciting milestone and paves the way for exploring more transformative use cases in the future.We want to support firms to impleme

17、nt technological solutions which enhance and strengthen the UKs asset management industry,while addressing risks and potential harms.However,embracing this technology in a way that works for our markets must be a joint effort.We need input and co-operation from across industry,as its imperative that

18、 we work together to make the UK a global hub for innovation.We are pleased to have collaborated with a wide range of participants in this work.I look forward to continuing our engagement on the next phases of work.5UK FUND TOKENISATION:A BLUEPRINT FOR IMPLEMENTATIONFOREWORD BY MICHELLE SCRIMGEOUR W

19、ORKING GROUP CHAIR AND CHIEF EXECUTIVE OFFICER AT LEGAL&GENERAL INVESTMENT MANAGEMENTOur industry is in many ways unrecognisable to when I first started my career.The increasing sophistication of technology has been one of the driving forces and I firmly believe that technologys transformational rol

20、e will increase in prominence from here.Therefore,it was an honour to be appointed Chair of the Technology Working Group of the UK Governments Asset Management Taskforce.It has been a real pleasure to see the breadth and depth of expertise the UK has to offer in adopting and leveraging the technolog

21、y that could underpin the next generation of asset management.Together,artificial intelligence(AI)and distributed ledger technology(DLT)present a sizeable opportunity and shift for the UK financial services industry.Fund tokenisation,in particular,has received much attention given its potential to r

22、evolutionise how we operate.Amongst other things it could enable greater liquidity,the creation of more bespoke portfolios and significantly enhanced risk management.Throughout this report,we consider the scale and nature of the opportunity that fund tokenisation and DLT offer the UK.This opportunit

23、y is real.UK Finance recently estimated that digital assets could represent as much as 10%of the global market by 2030,equivalent to a value of between$4-$5 trillion1.We are not talking here about unbacked and unregulated cryptocurrencies,but rather the application of DLT to mainstream asset classes

24、,namely equities and bonds.As with all opportunities,this one must be seized,and we cannot be complacent in how we do so.The good news is that the UK is starting from a strong place.Already a global leader in asset management,the scale and sophistication of our market is second to none.Embracing new

25、 technology is key to providing an ever-greater range of products and services;failing to do so would risk the UK falling behind other countries.We can put ourselves at the forefront of this transformative trend,but we must ensure we adapt and evolve as an industry.We undoubtedly have the talent and

26、 resources.This report is the result of many peoples hard work.I would like to highlight particularly the successful collaboration between colleagues from the investment management industry,the Investment Association,the FCA and HM Treasury.There are too many to name here,but my thanks go out to eve

27、ryone who offered their time,expertise,and insights to contribute to this report.The partnership between all those involved has created strong momentum for change,which is essential to deliver the innovation we need.THE INVESTMENT ASSOCIATION6EXECUTIVE SUMMARYThis report from the Technology Working

28、Group(the Group)of the Asset Management Taskforce details the first phase of its work on harnessing the potential of innovative technologies for the UK asset management industry.This report focuses on the application of distributed ledger technology(DLT)through investment fund tokenisation,which pre

29、sents a strategic opportunity to improve efficiency,transparency,and the international competitiveness of the UKs investment sector.We outline a shared vision for a future funds industry whose full value chain is operated on DLT,utilising digital forms of money and identity,providing synergies acros

30、s the funds industry by linking individual investors at one end with the investible assets at the other,and operating on a robust settlement layer that is secure,trustworthy,and capable of being decentralised.Through close engagement with HM Treasury(HMT)and the Financial Conduct Authority(FCA),the

31、Group has developed a blueprint for implementing the tokenisation of UK investment funds,which reconciles the Groups shared vision with the practical challenges that must be overcome to make it a reality.This blueprint recommends a staged approach to fund tokenisation,starting with a baseline model

32、that could be used within the existing legal and regulatory framework,and progressing to more advanced stages over time.The baseline or stage one model establishes the infrastructure for fund tokenisation in the UK funds market.Future stages may require legislative or regulatory rule changes and may

33、 also depend on other developments in the wider technological environment,such as digital forms of money.The industry is invited to help detail the shape of these further stages as part of the second phase of work in late 2023.The collaboration between the industry and the authorities has delivered

34、this step change to investment fund innovation:enabling the tokenisation of domestic funds indicates that the UK is open to new ideas and helps to ensure that investors have highly efficient vehicles available to them for their long-term investment needs in the 21st century.SUMMARY OF RECOMMENDATION

35、S Utilising Stage One:Industry should progress towards the full investment value chain operating on DLT via a series of incremental stages.The first stage is defined within the report.To fully utilise this first stage,the Group has considered three items:1.Regulatory certainty for UK fund tokenisati

36、onModels of fund tokenisation that follow the baseline or stage one characteristics set out in section two of the report should be capable of complying with the existing legal and regulatory framework.2.Foster DLT innovation across UK investment management industryThe IA will act as a conduit betwee

37、n the industry,FCA and HMT to progress future stages of fund tokenisation,demonstrate incremental delivery and help firms engage with relevant officials|Responsibility:IA|Timeframe:3 months&ongoingThe IA will work with relevant stakeholders to promote industry standards and encourage an open market

38、based upon interoperability and avoiding fragmentation|IA|3-18 months3.Money Laundering Regulations Registration Process While the Money Laundering,Terrorist Financing and Transfer of Funds(Information on the Payer)Regulations 2017(MLRs)are made by government under legislation,the FCA is exploring w

39、hether it could more quickly determine MLR registration applications for firms already authorised by the FCA to carry out regulated financial services activities,where there is a lower risk of harm and where the FCA has evidence of strong control frameworks and non-adverse regulatory histories|FCA|3

40、-6 months7UK FUND TOKENISATION:A BLUEPRINT FOR IMPLEMENTATION4.Industry to develop the details of further stages of fund tokenisationIndustry to develop the details of further stages of fund tokenisation|Industry|3 months+Once these further stages are detailed,industry to work with FCA to consider i

41、mpacts on Handbook rules&with HMT to consider impacts on legislation|FCA&HMT|9-12 months5.Availability of digital forms of money to settle transactionsIndustry to decide upon the optimal form of digital money for fund settlement|Industry|1-2 yearsIndustry to explore the possibility of leveraging the

42、 Bank of Englands work on Synchronisation to enable wider industry access to the Real-Time Gross Settlement service and enable funds settlement in digital central bank money|Industry|1-2 years6.Legal considerations for investible assetsThe ability of investment funds to hold tokenised versions of ma

43、instream assets may be assisted by legal clarification.The Group recommends that industry partners work with HMT to identify barriers in legislation for holding digital investible assets,and then to enable necessary legislative change,potentially through the Digital Securities Sandbox or another san

44、dbox|HMT&Industry|6-12 months7.Central Securities Depositary requirements and evolution of responsibilitiesHolding a digital security via a traditional central securities depositary may not be an optimal process,but one that could be addressed via the Treasurys Digital Securities Sandbox.Firms to ex

45、press interest to participate in HMT Digital Securities Sandbox|Firms|3-9 months8.Availability of digital identityThe group recommends that the government support building awareness of the digital identity legal framework set out in the Data Protection and Digital Information Bill,including the trus

46、t framework,and encourage industry adoption|HM Government|9-24 months.9.Availability of Banking ServicesThe group recommends that HMT consider whether further action is needed on access to business accounts|HMT|1-2 yearsUtilising Future Stages:Industry should then identify the prioritisation and cha

47、racteristics of future stages and work with the UK authorities to implement them.In being able to utilise these future stages,the Group recommends:THE INVESTMENT ASSOCIATION81.CONTEXT AND BACKGROUND This report is in three parts:1.Context and background the rationale for why fund tokenisation is so

48、important for the UK investment management industry,including examples of how progress has been made in other jurisdictions;2.A Shared Vision the long-term aim for an investment fund value chain based on DLT;3.The Blueprint for Implementation the items that industry,regulators and government can pro

49、gress to move the UK towards that vision.There is increasing recognition that we are entering a period of accelerating,potentially unprecedented,technological advance.Harnessing that decisively in the United Kingdom(UK)will contribute to two key objectives.First to enable better products,services an

50、d business growth,helping millions of domestic investors and the UK economy.Second,as the sector is so interconnected to the global economy,it will help to drive international competitiveness as part of the wider UK financial services cluster.THE TECHNOLOGY WORKING GROUPRecognising this,the Asset Ma

51、nagement Taskforce(the Taskforce),the Economic Secretary to the Treasurys influential forum convening senior leadership from the industry and the FCA,instructed a new Technology Working Group(the Group)to identify how the UK investment management industry can harness the potential of innovative new

52、technologies for the UK asset management industry.The Group was tasked with articulating the benefits of increased innovation in technology for investors and industry,and identifying the main opportunities presented by technologies such as DLT and generative AI,areas where strategic technology shift

53、s were creating new ambitious horizons for industry.The Groups membership was drawn from Taskforce members,government and the regulator,and wider non-asset management stakeholders.FIGURE 1:WORK SCHEDULE OF THE GROUP WITH INDICATIVE TIMINGSPhase One:Fund Tokenisation enabling UK funds to leverage DLT

54、(complete)TECHNOLOGY WORKING GROUPPhase Two:Further Fund Tokenisation an exploration of further stages(to February 2024)Phase Three:Artificial Intelligence and other tech utilising new opportunities across the sector(H1 2024)9UK FUND TOKENISATION:A BLUEPRINT FOR IMPLEMENTATIONWhat are tokenised fund

55、s?Sometimes also known as digital funds,these funds issue tokenised shares or units to represent the investors interest in them and are generally traded and recorded on a distributed ledger rather than a traditional system of records.Tokenisation is sometimes seen as a spectrum,and fund tokenisation

56、 is no different,with the precise definition differing depending on a number of variables.These include:the underlying type of blockchain technology utilised in the model;the extent to which the end-to-end transactional and record keeping processes are brought on-chain and the related extent of reli

57、ance upon traditional fund servicing functions;the extent to which the ledger is public and permissioned;and the distribution channels of the fund that are to be catered for.Ultimately,tokenised funds are intended to provide a way to interact with increasingly digitalised capital markets,where both

58、traditional and potentially new forms of asset class are issued and traded using DLT.Examples are provided in this report from other jurisdictions which have different features.Section 2,below,provides the specific features of a target state UK tokenised fund.For more background see the IAs member r

59、esources2 page theia.org/fundoperations/tokenisedfunds As a task-and-finish Group intended to run on a time-limited basis,it began by identifying a set of underpinning principles(the Principles)to ensure that the conclusions and proposals it produced were applicable to the whole investment managemen

60、t sector and provided tangible outcomes.The Principles were that the proposals of the Group should:1.have a core relevance to the delivery of investment management services to both domestic and international investors;2.offer opportunities to the widest possible range of firms across the sector,rath

61、er than focusing on any specific type of firm,product type,asset class,or customer group;3.be accompanied by a roadmap for delivery,clearly identifying any policy or regulatory change necessary;and4.seek to facilitate competitiveness and efficiency within the sector,recognising that some aspects of

62、technological change will be proprietary and subject to competitive advantage for a firm or group of firms.The Group divided its priorities into three phases of work.This initial report is the product of phase one and focuses on the application of DLT and associated concepts to the infrastructure of

63、 UK investment funds fund tokenisation(see box).As well as monitoring delivery progress against phase one objectives,the other phases of work are scheduled to focus on other innovative technologies including AI,and will similarly report back to the Taskforce.THE INVESTMENT ASSOCIATIONFUND TOKENISATI

64、ON Within the investment management industry,the discussion of the relevant applications of tokenisation has been ongoing for several years,with numerous publications,pilots,proofs of concept,industry consortia and fintech interest via the Investment Associations(IA)Engine3 innovation hub.However,pr

65、ogress has been slow with a range of hurdles including a lack of legal and regulatory certainty.More recently,there has been significant activity by funds in other jurisdictions(see boxes),and firms see an opportunity for the UK market.The international nature of the UK industry almost half of the 8

66、.8trn in assets managed in the UK are for international clients,with international firms playing a major role in the UK sector4 means we are uniquely positioned to not only build on the experience from elsewhere but also take a leadership position in the continued development of this important ecosy

67、stem.In 2022,the IA explicitly advocated for the UK to have the ability to deploy fund tokenisation as an evolutionary improvement to the nature of the fund,and as the minimum that should be achieved from the technology.As part of its Investment Fund 3.0 innovation concept5,the IA also looked at a m

68、ore transformative shift which could enable a more interactive and participatory experience for investors.Fund tokenisation in EuropeThere are several models for fund tokenisation in continental Europe,with much experimentation taking place and various models emerging to cater for different distribu

69、tion models.The nature of domestic rules has driven some of the local characteristics of digital asset technology,albeit the EU DLT Pilot regime seeks to achieve some consistency across the bloc.In recent months there has been a large volume of activity.Private bank-owned Metzler Asset Management ha

70、s issued tokens for a single share class of its German-domiciled Sustainable Growth fund in a controlled distribution pilot6,which took place on a public chain albeit with a restricted participant list.Germany has also legislated for digital securities to exist natively on-chain,without the need for

71、 a central securities depositary,and for funds to hold tokenised assets as well as funds to be tokenised at unit level.Archax created a tokenised representation of its interests in the abrdn Luxembourg-domiciled money market fund7(MMF)in a further stage of their joint project.The local regulator,the

72、 CSSF,has also explicitly permitted firms to utilise DLT for their fund register.In France,Generalis fund range is now available digitally on a DLT platform8,joining a large group of other fund firms listings for investors to select from.There are also examples of experimentation and pilots in Spain

73、 and Italy9.1011UK FUND TOKENISATION:A BLUEPRINT FOR IMPLEMENTATIONFund tokenisation in the United StatesUS funds tend to utilise public blockchains,something that other jurisdictions have largely avoided for privacy and control reasons to date.These funds publish a limited amount of information on

74、the chain,using masking techniques,and rely on a traditional off-chain register for legal title to ownership,requiring daily reconciliation to ensure the registers remain aligned.Bespoke apps are provided to investors to enable servicing and trading facilities.Examples of an increasing selection of

75、US mutual funds that are now available for sale on-chain include the first mainstream tokenised fund,a Franklin Templeton MMF,which has recently been made available on a second public blockchain with restricted distribution10.Hamilton Lane has a number of tokenised funds available,including a tokeni

76、sed feeder for the off-chain Equity Opportunities fund,which is now available via Securitize on the Polygon chain.This feeder has reduced the typical minimum investment amounts for investors from an average of$5m(for the direct fund)to$20,00011.WisdomTrees nine-strong digital fund range has recently

77、 been made available via its Prime service12.These funds offer exposure to a variety of traditional and emerging asset classes such as fixed income,equities and commodities as well as cryptocurrencies.Fund tokenisation in SingaporeA key focus in Singapore has been the pursuit of open and interoperab

78、le networks13.While established firms have generally preferred private,permissioned chains,emerging firms and FinTechs are leveraging the distribution power of public,permissionless networks.Recognising this,the Monetary Authority of Singapore has sought to balance the benefits of ease of access pro

79、vided by the former with the potential risks to financial stability and integrity of the latter through an ambitious programme of work.Project Guardian,a joint initiative with the financial industry to test the feasibility of DLT applications14 began in May 2022 and was recently expanded into furthe

80、r stages.The project has been praised for demonstrating strong ambition and as a unique example of close,real time industry collaboration.The publication outlining the latest stages included details of a partnership between Schroders and Calastone on a tokenised investment vehicle,potentially improv

81、ing the personalisation of products for retail and institutional investors,while simplifying day-to-day operational processing.Since then,UBS has confirmed15 a live pilot of its money market fund on a public blockchain.The native digital issuance aims to enhance fund distribution and facilitate impr

82、oved secondary market trading of fund shares.In October the FCA and other regulators announced that they were joining Project Guardian16.Among a wider list of objectives,according to MAS,this partnership will facilitate the development of common standards for the design of digital asset networks and

83、 market best practices across various jurisdictions17.12THE INVESTMENT ASSOCIATIONCONNECTING WITH WIDER CRYPTOASSETS WORKClearly,there is a much wider set of considerations with respect to the digitalisation of capital markets and novel asset classes.The Group believes that accelerating adoption wil

84、l help the UK industry to remain competitive in the global context and,importantly,to interact efficiently with the international capital markets ecosystem which is increasingly focused on different use cases for DLT and tokenisation18.There is a small,but rapidly growing$800m market in tokenised bo

85、nds in Europe alone19 and the combined value of digital versions of mainstream assets is predicted to reach$5tn by 203020.When the sell-side implements securities tokenisation at scale,the buy-side must have the capabilities to engage with the development process and interoperate effectively with it

86、.HMT has recently published its proposed design for the first financial market infrastructure sandbox the UK Digital Securities Sandbox(see box).This development,alongside the medium-term prospect of leveraging sources of digital money for on-chain settlement will provide a substantial opportunity f

87、or progress.Prospects for digital settlement include the Bank of Englands(the Banks)plans to widen the access routes for external entities to access central bank money21,other potential solutions such as the Regulated Liability Network22 and Fnality23,as well as regulated stablecoins.On the legal fr

88、ont,useful detailed examinations by the UK Jurisdiction Taskforce24 and the Law Commission25 have provided a further impetus by enhancing confidence in the underpinning framework for digital assets.While some of these developments are still in-flight,and tokenisation in other areas(such as equities

89、and other investible assets)is dependent on further work,it is now the ideal time for the funds industry and the UK authorities to take advantage of the opportunity to establish the fund tokenisation infrastructure for the UK funds market.The discussion of DLT and tokenisation is sometimes confused

90、or conflated with cryptocurrencies and Non-Fungible Tokens(NFTs),given their origin in the digital asset technology itself.An investigation into the utilisation of cryptocurrencies,NFTs and other unbacked cryptoassets within investment portfolios is out of scope of this report.With a few exceptions,

91、the investment management sector has taken a cautious approach to the adoption of unbacked cryptoassets as an investment class given a perception of risk and volatility,and several well-publicised recent incidents that have questioned the integrity of the broader market.Tokenisation at the fund leve

92、l simply seeks to leverage the benefits of the underlying technology and does not automatically provide such an exposure(unless the fund itself invests in unbacked cryptoassets).Utilising the technology and the concept of tokenisation is therefore distinct from becoming exposed to unbacked cryptoass

93、ets.13UK FUND TOKENISATION:A BLUEPRINT FOR IMPLEMENTATIONIn July 2023,HMT announced its plans for the first UK financial market infrastructure sandbox,the Digital Securities Sandbox26,which aims to enable digital securities to be tested and ultimately adopted across financial markets.Through the San

94、dbox,industry participants will be able to set up financial market infrastructures that utilise digital asset technology,which can perform a number of activities in relation to digital securities under a temporarily modified legislative and regulatory framework.The UK continues to be ranked as one o

95、f the most fintech-friendly countries globally.The UK authorities recognise that appropriate policy and regulation,accompanied by a clear allocation of supervisory responsibilities,can promote innovation.It gives innovators in companies of all sizes a clear framework within which to operate,setting

96、high standards for business practice and giving investors the confidence to try new services and providers.The Financial Services and Markets Act 2023(FSMA23)provides HMT with powers to set up financial market infrastructure sandboxes via statutory instrument which is a significant benefit as it ena

97、bles agile development based upon live activity.Each statutory instrument laid before Parliament would provide the legal basis for each sandbox and for temporarily disapplying or modifying relevant legislation for participants.This means that a temporarily modified legislative framework can be put i

98、n place to facilitate digital assets without the need for a further Parliamentary Bill,which would take time.The Sandbox will enable firms to set up and operate using innovative digital asset technology,performing the activities of a central securities depositary and operating a trading venue,under

99、a legislative and regulatory framework that has been temporarily modified to accommodate digital asset technology.These activities will be performed in relation to existing security classes(which could either be digitally native issuances or digital representations of existing securities).Limits wil

100、l be put in place for participating entities,which can be increased as progress is made.These limits will reflect the ability of a participating entity to meet requirements and manage risks.The flexibility and the timing of the sandbox make it a potentially useful tool to explore the use of digital

101、asset technology within the investment management sector.The proposals in the Sandbox design consultation refer briefly to tokenised units in funds,and any broader support and clarity it can provide around permitted uses of tokenisation are likely to aid industry adoption.A key aspect of the financi

102、al market infrastructure sandbox powers is the ability to make permanent changes to legislation on the basis of what is learnt.The permanent changes themselves would be enabled by HMT laying a further statutory instrument before Parliament.Importantly,these powers can be exercised before the end of

103、a sandbox,to ensure there is no gap between that sandbox ending and the UK legislative framework being permanently modified(thereby avoiding a cliff edge for participating entities).The regulators,including the FCA,will also be able to update rulebooks and standards in response to what is learned fr

104、om a sandbox.HMT intends to lay a statutory instrument before Parliament later this year to create the legal framework for the Digital Securities Sandbox.In parallel,the Bank and FCA will publish further guidance,consult on rule changes,and set out the application process.Potential applicants are en

105、couraged to contact the regulators as soon as possible in order to discuss what activity they may want to conduct in the Sandbox.The UK Digital Securities SandboxTHE INVESTMENT ASSOCIATION14ROLE OF AIThere has been a significant level of interest in AI within society,business and governments in rece

106、nt months28.The Group is convinced by the potential for significant business productivity gains from AI over the coming years but at this stage believes that there are more opportunities and momentum in tokenisation that can be leveraged,with highly relevant complementary interconnections with the s

107、ell-side and with the investor community.It is likely that investment management-specific benefits of AI will further manifest once paired with DLT.AI offers decision-making capabilities while DLT facilitates real-time recording of economic activity.On 30 October 2023,HM Treasury published its respo

108、nse to the consultation on the future financial services regulatory framework for cryptoassets27.HM Treasurys consultation adopted the definition of cryptoassets used in FSMA23,namely:any cryptographically secured digital representation of value or contractual rights that (a)can be transferred,store

109、d or traded electronically,and (b)that uses technology supporting the recording or storage of data(which may include distributed ledger technology)This definition is drawn broadly and could in theory capture tokenised fund interests.However,there are two important points to note from the consultatio

110、n response:First,the response notes that future financial services regulation of cryptoassets will apply to a particular subset of cryptoassets depending on what is being regulated and will accordingly use a narrower definition.Second,the response is clear that the government does not intend its fut

111、ure regime to capture cryptoassets that are also specified investments that are already regulated.The response envisages that this category of cryptoasset will continue to be regulated in line with the relevant existing rules and regulations,subject to the caveat that the unique qualities of cryptoa

112、ssets will likely require a small number of specific adjustments to those existing regimes,for instance around custody.HM Treasurys response is clear that the fact a certain category of cryptoassets will not be subject to the future financial services regulatory regime for cryptoassets(i.e.the regim

113、e covered in the consultation)does not mean those same cryptoassets will not be subject to other regulatory regimes either now or in the future.This could include but is not limited to the financial promotions regime,applicable existing regulatory regimes for traditional securities or generally appl

114、icable areas of law such as in relation to anti-money laundering/counterterrorism financing or fraud(including the Money Laundering Regulations).Industry will need to monitor developments in this area closely,but HM Treasurys response appears to offer reassurance to firms that the government recogni

115、ses the distinction between tokenised versions of already-regulated specified investments and the wider category of cryptoassets such as Bitcoin.UK Cryptoassets Regulatory FrameworkWhen combined,these two technologies could enable trading,client engagement and compliance and oversight to be integrat

116、ed efficiently.AI models in smart contracts could provide recommendations for investment or for executing transactions according to a specific set of events or thresholds,creating an economic layer for executing actions according to predefined instructions.AI-powered investment managers could levera

117、ge secure,decentralised,and completely transparent infrastructure,improving consumer-facing products.The Group therefore plans to look at the application and risks of AI in phase three of its workplan.15UK FUND TOKENISATION:A BLUEPRINT FOR IMPLEMENTATION2.A SHARED VISIONAs outlined in section one,th

118、e Group see three key drivers that define a genuine opportunity for UK fund tokenisation that should be exploited urgently:An increasing appetite from firms to leverage the experience gained from work being done in other jurisdictions;A time-limited opportunity deriving from the UK authorities compl

119、ementary workstreams on future regulatory frameworks,the financial market infrastructure sandbox,and digital forms of money;and An ambition to interact more effectively with both the wider capital markets and investor communities.BENEFITSThere are tangible benefits available to investment funds,main

120、ly relating to efficiency and speed.(i)A real-time record-keeping system shared across all parties servicing the fund could eliminate the need for participants to reconcile their data with a centralised register.Currently,each party to the fund,such as the fund administrator,checks the accuracy of t

121、he data they hold with that held by other parties on a daily and sometimes intra-day basis,which collectively represents a significant level of activity and effort.If that were no longer necessary,investors should benefit from the resultant cost and speed efficiencies realised by the firms running a

122、nd administering the fund through a transformed,digitally enabled back-office infrastructure.(ii)Once the settlement profile of the underlying assets is optimised,tokenised funds will be able to provide quicker settlement capabilities for unit transactions.Currently,many open-ended funds operate the

123、ir unit dealing process on a settlement basis(typically trade date+3 days)that is misaligned with the timing of the underlying asset settlement(T+2),to provide buffer time for the fund manager to react to cashflow requirements,and due to the constraints of the payment systems utilised and the requir

124、ements of intermediaries.This misalignment,usually by a day,presents challenges with cashflows that require temporary funding.With funds coming under increased pressure from reductions in capital market settlement timings,such as that scheduled in the US next year29,the ability of DLT to support set

125、tlement at a variety of speeds,including on a near-immediate basis,provides greater flexibility for funds as well as reducing credit and operational risks.(iii)The power of smart contracts enables scaling of automated processes,such as distributions or corporate actions,via executable code driven by

126、 pre-defined and logic-based workflows.In the case of fund distributions,the pre-defined timetable provides the parameters for the smart contract to calculate and execute each investors payment from or reinvestment into the fund,and issue customisable taxation and other reporting.(iv)Some members of

127、 the Group highlighted the benefits available,should institutional investors be permitted to post their tokens as collateral.This would be particularly useful for tokens of funds in thinly traded markets,or at times of stress where investors may be forced to sell at reduced prices,as firms could tem

128、porarily post their interest in the fund to a counterparty rather than needing to redeem their position in the fund in order to raise cash.In recent weeks,a transaction of this type has been carried out,where money market fund tokens were used as collateral between bilateral derivatives counterparti

129、es30.Quick look at potential benefits of fund tokenisation Simplification of books and records,including reconciliations Reduction in fund administration costs Quicker settlement and reduced temporary liquidity funding Potential for greater liquidity Automation driven by smart contracts Enhanced dat

130、a disclosure Improved reporting capabilities including real-time access for regulators or distributors Access to a wider set of investment products by the injection of liquidity from secondary markets and reduced investment minimums Potential for increased use as collateral Improved processing of co

131、rporate actions through automation Hyper-personalisation of portfolios to address specific investor needs Improved transferabilityTHE INVESTMENT ASSOCIATION16Greater data transparency may be available through embedding data within the tokens themselves,enabling a direct route for investor informatio

132、n disclosure.Details relating to the token holders rights and obligations,performance and voting data,or anti-money laundering information could be provided as part of the token.Other benefits and network effects may be identified when we move further forward and could include uses such as the abili

133、ty for regulators to have access to the network for real-time supervision and data reporting,the easier transfer of ownership between platforms and engaged governance on portfolio assets via easier voting processes.Tokenised funds are no longer a new concept and have grown in popularity in some of t

134、he major fund jurisdictions across the world such as the USA,Singapore,Luxembourg,Germany and France.The approaches differ between jurisdictions and within,in addition to innovation that differs on future and backward compatibility.Fund tokenisation can therefore be seen as a spectrum,with various o

135、ptional features able to be adjusted.The maximum benefits can only be realised at the end of the spectrum,but a more efficient funds market is achievable early on:much more efficient transaction and registry capabilities,more frequent trading opportunities via secondary markets,as well as a streamli

136、ned and automated fund servicing obligation.THE VISIONThe Group has established a future state operating model for full fund tokenisation as a long-term goal.This shared vision weighs up the varying options of tokenisation observed in other jurisdictions,the specific market characteristics of the UK

137、,and consistency with the Groups Principles.Within UK funds,there are three potential fund registers in scope:Areas of opportunity Description Party responsible Potential use casesClient register Unit register Asset registerThe register of end investors/beneficial owners The register of primary mark

138、et investors/the platformsThe register of securities making up the funds portfolioInvestment platform/distributor Fund manager Custodian/DepositaryCreating additional choice for investors when selecting digital funds marketplacesOptimising fund inflows/outflows Optimising fund administration and pot

139、entially opening up new asset classes for investment17UK FUND TOKENISATION:A BLUEPRINT FOR IMPLEMENTATIONThe Group agreed on a shared long-term vision of each of these registers being accessible on-chain.This provides the best commercial use case with synergies across the funds industry,linking indi

140、vidual investors at one end with the investible assets at the other and operating on a robust settlement layer that is secure,trustworthy,and capable of being decentralised.While this shared vision is optimal in the long-term,most members of the Group agreed that it needed to be reconciled with the

141、art of the possible given that the required investment and resourcing may be significant.There was broad agreement that collaboration within the industry and with the authorities were essential to make progress.FIGURE 2:THE THREE REGISTERS APPLICABLE TO INVESTMENT FUNDS,WITH THE SHARED VISION SHOWN

142、AT THE CENTRECBAAsset focusedDistribution focusedShared visionClient Register of FundsFund Unit RegisterFund Asset RegisterTHE INVESTMENT ASSOCIATION18As a baseline,a stage one tokenised investment fund(which could be a new or a pre-existing fund)or share class(es)of an otherwise off-chain fund,woul

143、d have the following characteristics:Authorised fund The fund would be established in the UK.It would be FCA authorised and in scope of the legal and regulatory regimes in line with existing industry norms.The current legal and regulatory roles of the parties to the fund remain the same e.g.,authori

144、sed fund manager,depositary,custodian etc.Holds traditional assets The investment portfolio would be made up of mainstream investment assets held by a custodian,such as equities,bonds and the like,consistent with existing UK authorised funds.For example,despite the use of DLT,it would not hold crypt

145、ocurrencies.Off-chain,usual cycle settlement Settlement of transactions in the units of the fund would be carried out as they are today(i.e.,purchase from/redemption by the manager).Fund settlement is entirely off-chain,with no use of any forms of digital money,and on the same timescales as a typica

146、l UK fund(i.e.,T+2/3).The payments records will need to interact effectively with the unit register to keep a track of failed or overdue payments and be compliant with the existing client money requirements in CASS in respect of designated investment business.A STAGED APPROACHCommercial,legal and te

147、chnological issues will potentially challenge the achievement of this vision,both in the UK and globally.To identify and address these issues,and give firms the opportunity to pilot technological change,the Group agreed on a staged approach to implementing fund tokenisation in the UK,starting with a

148、 baseline model before adopting more complex approaches.STAGE ONE CHARACTERISTICSThe first phase of the Groups work has focused on the unit register as an achievable objective that will enable industry to progress in the short term and provide forward momentum.In this scenario,the only changes relat

149、ive to a typical UK investment fund operating today are in the deployment of DLT in the registry and transaction functions.A private,permissioned chain would act as the master record for the fund unit register.In other words,the fund would be highly recognisable and consistent with mainstream funds

150、that exist today,while utilising DLT for sales and redemption transactions and acting as the register of holders.19UK FUND TOKENISATION:A BLUEPRINT FOR IMPLEMENTATION Private,permissioned chain Access to the network will need to be permissioned and tightly controlled to ensure that all participants

151、are identifiable and have a legitimate interest,with data sharing control as appropriate.The parties to the network would have shared visibility of the(relevant parts of the)register without needing to maintain their own individual records.Fund valuation The fund would continue to provide a valuatio

152、n point on a daily basis or on another timescale consistent with existing regulation and market practice.Intra-day/real-time valuation is not in the scope of this stage.Control over the register The traditional fund register would be replaced by DLT records.Firms would need to be able to demonstrate

153、 that they are able to exercise control over the register by having the ability to execute one-sided transactions outside of the consensus mechanism or to prevent transactions where required31.Future-proof As far as possible,developments under this scenario should not restrict future innovation or i

154、nteroperability.This should be readily achievable given the limited extent of modification to the operating model under this stage and the lack of formal rule change.As part of the development of this report,the FCA and firms have not identified any obvious or significant barriers to this baseline a

155、pproach in the FCAs rules that apply to authorised funds.The potential barriers reviewed were in the rules in the Collective Investment Schemes sourcebook(COLL),Investment Funds sourcebook(FUND)and the Client Assets sourcebook(CASS).However,as individual models of fund tokenisation may differ,the FC

156、A expects firms to undertake their own due diligence to ensure they comply with their legal and regulatory obligations.Firms may wish to seek appropriate professional advice in this regard.In circumstances where tokenised units fall within the regulatory perimeter(e.g.,security tokens),firms carryin

157、g out regulated activities relating to custody of these assets are likely to be subject to CASS.The FCA is currently reviewing its custody rules in respect of digital assets see Chapter 5 of the FCAs DP23/432 for further details.STAGE TWO AND BEYONDHaving agreed the nature of stage one,further stage

158、s will involve exploring how to develop that model in different ways.The characteristics of these future stages of work will be considered in more detail in phase two,towards the end of 2023.It is expected that there will be further stages required over time,with incremental progress being made by c

159、hanging one,or potentially two,features at a time.This will provide needed transparency of the impact of each new feature.The scheduling choice for each of the features will need to be considered carefully.Some firms may want to move quickly towards the use of a single open,public chain operating on

160、 a robust settlement layer that is secure,trustworthy,and decentralised.Others will see value in other features such as global market access and interoperability,secondary markets or rethinking the funds ecosystem more drastically.Settlement utilising digital money,or on a much-reduced timescale,wil

161、l be a likely area of development,as will increasing links to the asset and client registers.The consideration of the relative merits of these features and the appropriateness of each will be considered in phase two.Firms with relevant experience or an interest are invited to share their views.When

162、taken together,the changes brought about by the proposed staged approach will move the implementation of fund tokenisation towards the shared vision state of each register being held on-chain.THE INVESTMENT ASSOCIATION203.THE BLUEPRINT FOR IMPLEMENTATIONThe Group has identified the steps required to

163、 move the industry along the spectrum towards the shared vision,ensuring that the UK is at the forefront of innovation and supporting the importance of the UK investment fund market.This agreed Blueprint for Implementation sends a definitive message to the industry and wider stakeholders that the in

164、frastructure for UK fund tokenisation has been established and can now be utilised via the baseline model outlined in the previous section,and that further work is being undertaken in short order to make improvements to the model for more complex use cases and applications.The items making up the Bl

165、ueprint are a combination of:(i)those that are to be navigated in order for firms to utilise the baseline or stage one effectively,and(ii)those that are relevant to certain use cases that may be a feature of future stages,or whose remedy would provide a useful enabler for the shared vision.A:UTILISI

166、NG STAGE ONEFirms are now able to utilise fund tokenisation in the UK based upon the baseline model characteristics listed on pages 20-21,and subject to navigating three items.1.Regulatory certainty for UK fund tokenisationThe rules relating to authorised investment funds are well established and we

167、re written before DLT was envisioned.As part of the Groups work,the FCA and firms conducted a high-level review of the existing rules that apply to authorised funds,including the rules in COLL,FUND and CASS.No obvious or significant barriers to stage one were identified.This means that models of fun

168、d tokenisation that follow the stage one characteristics should be capable of complying with the existing regulatory framework.As individual models of fund tokenisation may differ,the FCA expects firms to undertake their own due diligence to ensure they comply with their legal and regulatory obligat

169、ions.In circumstances where tokenised units fall within the regulatory perimeter(e.g.,security tokens),firms carrying out regulated activities relating to custody of these assets are likely to be subject to CASS.The FCA is currently reviewing its custody rules in respect of digital assets via DP23/4

170、.Other stages,to be defined during phase two of the work,will be assessed on their individual merits and may require rule changes,which will be subject to the regulatory rule making or adaption process at the appropriate time.21UK FUND TOKENISATION:A BLUEPRINT FOR IMPLEMENTATION2.Foster DLT innovati

171、on across UK investment management industryThe industry discussion on the relevant applications of tokenisation has been ongoing for several years,with numerous publications,pilots,proofs of concept,industry consortia and other activity.Encouraged by this recent level of engagement and commitment by

172、 the authorities to move forward,industry should reinvigorate its innovation agenda to deliver change,ensuring that investors have highly efficient and cost-effective vehicles available to them for their long-term investment needs.This could take the form of ensuring that industry is able to leverag

173、e the collaborative engagement with the authorities,is able to realise the tangible benefits and cost reductions that are promised by the technology and improving employee skills to maximise the opportunities.To benefit from economies of scale and momentum,industry should coalesce around incremental

174、ly advanced stages of innovation instead of operating in silos or in a disconnected manner.The IA will act as a conduit between the industry,FCA and HMT to progress future stages of fund tokenisation,demonstrate incremental delivery and help firms engage with relevant officials.IA|3 months&ongoing T

175、he IA will work with relevant stakeholders to promote industry standards and encourage an open market based upon interoperability and avoiding fragmentation.IA|3-18 months3.Money Laundering Regulations Registration Process Currently,firms proposing to use DLT for fund tokenisation purposes may be re

176、quired to register with the FCA33 as a cryptoasset exchange provider or custodian wallet provider,or both,under the Money Laundering Regulations.Registration is required even if a relevant firm is already authorised by the FCA to undertake other financial services activities.Firms in the working gro

177、up have raised the time it can take to obtain registration as a potential barrier to using fund tokenisation.While the Money Laundering Regulations are made by government under legislation,the FCA is exploring whether it could more quickly determine MLR registration applications for firms already au

178、thorised by the FCA to carry out regulated financial services activities,where there is a lower risk of harm and where the FCA has evidence of strong control frameworks and non-adverse regulatory histories.FCA|3-6 monthsTHE INVESTMENT ASSOCIATION22FIGURE 3:RECOMMENDATIONS FROM THE GROUP,BY RESPONSIB

179、LE PARTYInvestment Association/Industry Financial Conduct Authority HM Treasury/GovernmentThe IA will act as a conduit between the industry,FCA and HMT to progress future stages of fund tokenisation,demonstrate incremental delivery and help firms engage with relevant officials.Timeframe:3 months&ong

180、oing The IA will work with relevant stakeholders to promote industry standards and encourage an open market based upon interoperability and avoiding fragmentation.3-18 months Industry to develop the details of further stages of fund tokenisation.3 months+Industry to decide upon the optimal form of d

181、igital money for fund settlement.1-2 years Industry to explore the possibility of leveraging the Bank of Englands work on Synchronisation to enable wider industry access to the Real-Time Gross Settlement service and enable funds settlement in digital central bank money.1-2 yearsFirms to express inte

182、rest to participate in HMT Digital Securities Sandbox.3-9 monthsWhile the Money Laundering Regulations are made by government under legislation,the FCA is exploring whether it could more quickly determine MLR registration applications for firms already authorised by the FCA to carry out regulated fi

183、nancial services activities,where there is a lower risk of harm and where the FCA has evidence of strong control frameworks and non-adverse regulatory histories.3-6 monthsOnce the further stages are detailed,FCA to consider impacts on Handbook rules.9-12 monthsOnce the further stages are detailed,HM

184、T to consider impacts on legislation.9-12 months The Group recommends that industry partners work with HMT to identify barriers in legislation for holding digital investible assets,and then to enable necessary legislative change,potentially through the Digital Securities Sandbox or another sandbox.6

185、-12 monthsThe group recommends that the government support building awareness of the digital identity legal framework set out in the Data Protection and Digital Information Bill,including the trust framework,and encourage industry adoption.9-24 monthsThe group recommends that HMT consider whether fu

186、rther action is needed on access to business accounts.1-2 years23UK FUND TOKENISATION:A BLUEPRINT FOR IMPLEMENTATIONB:UTILISING FUTURE STAGESFuture stages will depend on industrys views on the features to be prioritised and the appropriate scheduling of them as we move along the spectrum towards the

187、 shared vision.Items in this section are relevant to certain use cases or whose remedy would provide a useful enabler for future progress.4.Industry to develop the details of further stages of fund tokenisationThis report sets out the first stage of tokenised investment funds and the characteristics

188、 they will have.Now that this first stage,or baseline model,is established the discussion must move onto what the next stages and applications of a tokenised investment fund might be.Whereas the characteristics of a stage one tokenised fund are set out above,the characteristics of future stages and

189、uses of fund tokenised funds are a matter for further discussion,with various considerations to be made on which features should be adjusted,and in which order.Some firms will want to move quickly towards the use of a more open,public chain.Others will see value in other features such as a much-redu

190、ced settlements timescale,or more open secondary markets.The Group will consider the relative merits and appropriateness of each of these features and engage the authorities where regulatory or legislative change may be necessary.Firms with relevant experience or an interest are invited to share the

191、ir views with the Group by the end of 2023 to be included in phase two,or afterwards to the IA.Separately,some firms are keen to be able to modernise the way units in a fund are bought and sold,as an alternative to the traditional UK business model.The IAs Direct2Fund34 proposition is an optional mo

192、del which would make it possible for investors to transact directly with the fund when buying and selling units.This may also be considered in a fund tokenisation structure.The IA is working with the FCA to identify and analyse regulatory issues in introducing this new dealing model.These include ho

193、w investor protections currently afforded by COLL and CASS rules could be appropriately maintained.Industry to develop the details of further stages of fund tokenisation.Industry|3 months+Once these further stages are detailed,industry to work with FCA to consider impacts on Handbook rules&with HMT

194、to consider impacts on legislation.FCA&HMT|9-12 months5.Availability of digital forms of money to settle transactionsWhile existing payment rails can be leveraged to facilitate fund settlement in early-stage scenarios,digital forms of money will provide greater efficiency and an on-chain mechanism,m

195、ore directly linking the transfer of ownership of the token with the payment.Phase 1 of HMTs cryptoassets regulation,as set out in the consultation on the Future Financial Services Regulatory Regime for Cryptoassets,suggests that a regulated stablecoin framework will be delivered shortly,but it is t

196、oo early to know whether these private commercial coins could be utilised for these purposes.HMT has recently confirmed that it will be bringing the activities of issuance and custody of fiat-backed stablecoins,where the coin is issued in or from the UK,within the regulatory perimeter of the Financi

197、al Services and Markets Act 200035.A coin of this type may be suitable for on-chain fund settlement.Separately,the Bank and HMT are exploring a retail digital pound36,a central bank digital currency(CBDC)for the UK public and businesses.The proposal for the digital pound,as set out in the February 2

198、023 consultation37,is a retail proposition designed for everyday payments,for use between individuals and other individuals or businesses in the real economy.However,the proposed model for the digital pound as set out in the consultation paper is not envisaged to be a form of wholesale payment for t

199、rading in and settling securities transactions.THE INVESTMENT ASSOCIATION24Nevertheless,the similar concept of a wholesale CBDC could be used to settle high-value payments between financial firms.The Bank is separately exploring wholesale initiatives,as noted in the digital pound consultation paper.

200、The Banks intentions for wholesale are being progressed via an upgrade to its Real-Time Gross Settlement(RTGS)service which will,in the medium term,enable the RTGS to interoperate with innovative technologies(e.g.,DLT).It aims to achieve this via means such as omnibus accounts and a new synchronisat

201、ion functionality the Bank is exploring.The IA is a member of its Synchronisation Co-Creation Group in this regard.Other digital forms of commercial money are likely to come to market in the coming months and years that could also prove to be useful mechanisms for on-chain settlement in fiat currenc

202、y.These may be interim solutions until access to central bank-backed forms of digital money are widely available,or they may prove to be the longer-term solution.Industry to decide upon the optimal form of digital money for fund settlement.Industry|1-2 years Industry to explore the possibility of le

203、veraging the Bank of Englands work on Synchronisation to enable wider industry access to the Real-Time Gross Settlement service and enable funds settlement in digital central bank money.Industry|1-2 years6.Legal considerations for investible assetsAs recently outlined by the UK Jurisdiction Taskforc

204、e and the Law Commission,English and Welsh law is generally flexible enough to cater for digital assets,albeit this may be assisted by a new third category of personal property which would include digital objects.It should further be noted that the ability of funds to hold digital securities within

205、their portfolios is not expressly permitted by UK law.According to the Law Commission,the requirements of the Companies Act 2006 relating to the maintenance of members registers may also act as a barrier to the tokenisation of shares and other corporate securities.This was echoed by HMT in their con

206、sultation on the Digital Securities Sandbox,which identified the following potential barriers to enabling digital securities to be effectively notarised,traded,settled and maintained:The section covering formalities of registers of members(Section 113)may need to be clarified to ensure that referenc

207、es to a register include digital or electronic form.The section which covers instruments of transfer(S770)may need to be modified to ensure that any transfers via a financial market infrastructure in the Digital Securities Sandbox can be regarded as consisting of a proper instrument of transfer.Refe

208、rences to securities(particularly in S783)may need to be clarified to ensure they includes securities issued/traded/settled/maintained inside the sandbox.The section relating to company records(S1134)may require modification to treat kept by a company as including those stored and maintained in digi

209、tal or electronic form on a decentralised ledger within a financial market infrastructure.Although these amendments are not strictly required for the tokenisation of securities on a permissioned blockchain,the Group agrees with the observations above and recommends that the government consider makin

210、g these modifications in order to provide clarity and drive investment in fund tokenisation in the UK.The Group also recommends that equivalent positive clarifications be made within the Limited Partnerships Act 1907 for Limited Partnership interests,for the same reasons and to avoid any argument th

211、at omission equates to a lack of permission.25UK FUND TOKENISATION:A BLUEPRINT FOR IMPLEMENTATIONIn addition,as observed by the Law Commission and the UK Jurisdiction Taskforce,future case law may provide clarity on the existing common law position for investors on ownership,title,delivery,and categ

212、orisation at the issuance level,or at the tokenisation level if the asset has already been issued.This may also raise regulatory issues in the FCAs Handbook,including interaction with the CASS and COLL rules.Further to the Law Commissions conclusions,in Scotland,a separate project is close to culmin

213、ation in developing recommendations in respect of the treatment of digital assets.The Expert Reference Group will provide legal clarification and advice to the Scottish Government on whether there is a need for legislation to accommodate digital assets in Scots private law.Firms with funds constitut

214、ed there should monitor this in case of further relevant legislative developments.The Group recommends that industry partners work with HMT to identify barriers in legislation for holding digital investible assets,and then to enable necessary legislative change,potentially through the Digital Securi

215、ties Sandbox or another sandbox.HMT&Industry|6-12 months7.Central Securities Depositary requirements and evolution of responsibilitiesAdmittance of securities to a trading venue requires admission to a central securities depositary(CSD)under the UK Central Securities Depositories Regulation(UK CSDR)

216、.This would apply to some tokenised funds,such as Exchange Traded Funds,and certainly to tokenised underlying assets held within the funds investment portfolio.Adding a digital security to a non-digital CSD results in the digital representation being transitioned back to traditional operational stru

217、ctures rather than utilising the benefits of a DLT,which is inefficient and duplicative.Additionally,references to defined terms such as accounts,book entries,credits and debits in current legislation and regulation may pose problems for many DLT arrangements.The HMT Digital Securities Sandbox will

218、enable firms to perform the activity of a CSD under a modified legislative framework.If firms want to perform these activities they can apply and be designated as a digital securities depository and perform live activity whilst making use of modifications to,or alleviations from legislation,which wo

219、uld be subject to limits.These limits can be lifted as an entity meets requirements over time.Relevant requirements include UK CSDR Article 2(1)(definitions),3(2)(book-entry form),16(authorisation of a CSD)and 35(messaging standards),along with the other requirements identified in HMTs Digital Secur

220、ities Sandbox consultation paper.Firms to express interest to participate in HMT Digital Securities Sandbox.Firms|3-9 monthsTHE INVESTMENT ASSOCIATION268.Availability of digital identityA significant responsibility of fund managers relates to the identification of potential investors and establishin

221、g the legitimacy of their background and source of funding(as per item 3).The process for doing so is fragmented,documentation-heavy and sometimes lengthy.The emergence of secure identity data capabilities provides a more efficient and digital solution for customer due diligence.Digital identificati

222、on is already available for retail investors but its adoption within the funds industry has been uneven to date with some questioning their ability to meet the requirements under the Money Laundering Regulations.Solutions for institutional investors are also emerging,and adoption across investor typ

223、es will be helped by the government progressing digital identity measures via the Data Protection and Digital Information(No.2)Bill38.The Bill,which is expected to become law in 2024,will put in place the necessary structures for secure digital identities.The provisions in the Bill will underpin the

224、 UK digital identity and attributes trust framework(a set of rules and standards governing the use of digital identity),establish governance functions so that people and businesses can know who is following those rules and enable public authorities to share information with organisations certified a

225、gainst the trust framework for digital verification purposes.The government is considering the best way to provide greater clarity for industry as to how digital verification services certified against the UK digital identity and attributes trust framework support requirements under the Money Launde

226、ring Regulations 2017.The group recommends that the government support building awareness of the digital identity legal framework set out in the Data Protection and Digital Information Bill,including the trust framework,and encourage industry adoption.HM Government|9-24 months9.Availability of Banki

227、ng ServicesFintechs and even some established firms providing services related to tokenisation and DLT are sometimes unable to obtain banking services from UK banks.This may reduce the pace of innovation in the UK and potentially increase the risk to investors where firms instead are pushed into usi

228、ng sub-optimal banking arrangements or an e-money institution.Regulators in some other jurisdictions have urged banks to review their due diligence processes for unnecessary burdens when onboarding firms performing cryptoasset-related activities,while cautioning firms to represent their services acc

229、urately.The UK authorities could consider how to support innovators via full access to banking services.The group recommends that HMT consider whether further action is needed on access to business accounts.HMT|1-2 years27UK FUND TOKENISATION:A BLUEPRINT FOR IMPLEMENTATIONCONCLUSIONThe industrys col

230、laboration via the Asset Management Taskforce with government,regulators and a wide range of market participants has delivered a step change to investment fund innovation by establishing the infrastructure for fund tokenisation in the UK funds market.It puts the foundation in place for investors to

231、access highly efficient and cost-effective vehicles for their long-term investment needs and confirms the UKs position as a leading jurisdiction for innovation.We will look at further stages of fund tokenisation,as well as monitoring progress against the short-term recommendations,as part of the pha

232、se two workstream.Firms with an interest in either should contact us to provide input.The Working Group will follow up with its conclusion on these other phases of work in due course.As the Secretariat for the Group,the IA will work with its membership and other key stakeholders to ensure the delive

233、ry of all of the recommendations and to review progress with the Asset Management Taskforce.While the UK is considered one of the world leaders in asset management with a long heritage in investment funds and innovation,there is no room for complacency.The investment industry and society as a whole

234、need to navigate the challenges of an ongoing technology transformation in the remainder of this decade and beyond to continue to deliver value for savers.28THE INVESTMENT ASSOCIATIONGROUP MEMBERSHIP/ACKNOWLEDGEMENTSAsset Managers:Legal&General Investment Management Michelle Scrimgeour(Chair),Derric

235、k Hastie,Steve HarkerFidelity Anne Richards(Deputy Chair),Lukas Monk,Prasad ChandrashekerBaillie Gifford Scott Saunders,Felix Ulloa,Caroline Ironside,Theo GoldenBlackRock Martin SymsJP Morgan Neil JosephM&G Rodney Hutchinson,James Leece,Alex HousemanSchroders Marita Mc GinleyArchax Graham Rodford,Ni

236、cola HarteAquis Exchange Philip Olm,Adrian IpAugmentum Martyn HolmanCalastone Edward Glyn,Simon Keefe,Michael McNeil,Adam BeldingCMS Charles Kerrigan,Mike RingerCopper Fadi AboualfaGalaxy Digital Alex RoyleHargreaves Lansdown Paul DimambroInnovate Finance Mike CarterLondon Stock Exchange Group Dotun

237、 Rominiyi,Pete StephensNEST Paul BaileyNorthern Trust Toby Glaysher,Anna MatsonMEMBERS OF THE TECH WORKING GROUPHM TreasuryFinancial Conduct Authority Camille Blackburn,Nike Trost,Michael Collins,Mark Glibbery,Peter MartinOBSERVERS FROM GOVERNMENT DEPARTMENTS AND REGULATORSThe Working Group would es

238、pecially like to thank EY including Amarjit Singh,Robin Kennedy and Jeanne Sun for their support,the other members of the Investment Association and IA Engine who provided input and feedback as well as the following individuals at the IA who have supported the Group and the delivery of the report:Jo

239、nathan Lipkin,John Allan,James King,Rachel Ellison and Chris Deacon.ACKNOWLEDGEMENTSENDNOTES1 Source:UK Finance:Unlocking the Power of Securities Tokenisation July 20232 The Investment Association:Tokenised funds resources webpage3 Engine is the worlds leading buy-side fintech hub,launched in 2018,w

240、hich aims to fuel the adoption of technology within the investment management sector,for the benefit and changing needs of clients.Source:IA Engine:About Us website4 The UK is the worlds leading international investment hub.Source:The Investment Association:Investment Management in the UK:The Invest

241、ment Association Annual Survey 2022-2023 October 20235 The Investment Association:Investing for the Future July 20226 Ignites Europe:Metzler issues tokenised shares for sustainable growth fund September 20237 Investment Week:Digital asset exchange tokenises stake in 16bn abrdn money market fund June

242、 20238 Iznes:Successful use of blockchain for unit-linked asset management June 20239 A longer,but not comprehensive,list of examples is available on the IAs Tokenised funds resources webpage which is broken down by region and country.10 Franklin Templeton:Franklin Templeton Money Market Fund Launch

243、es on Polygon Blockchain April 202311 Securitize:Hamilton Lanes$2.1 Billion Flagship Direct Equity Fund Now Available for Investment on Securitize via Polygon January 202312 WisdomTree:Prime brings tokenization and blockchain-enabled finance to the center of the consumers financial life July 202313

244、Monetary Authority of Singapore and the Bank for International Settlements:Enabling Open and Interoperable Networks June 202314 Monetary Authority of Singapore:Project Guardian website15 UBS:UBS Asset Management launches first blockchain-native tokenized VCC fund pilot in Singapore October 202316 Fi

245、nancial Conduct Authority:FCA joins forces with global regulators to foster digital innovation with Project Guardian October 202317 Monetary Authority of Singapore:MAS Partners Policymakers in Japan,Switzerland and the UK to Foster Responsible Digital Asset Innovation October 202318 The sell-side ar

246、e increasingly testing and issuing tokenised versions of assets,and digital securities,in various jurisdictions.Source:UK Finance Ibid19 European Securities and Markets Authority:ESMA Report on Trends,Risks and Vulnerabilities,No.2,2023 August 202320 Citi:Money,Tokens,and Games:Blockchains Next Bill

247、ion Users and Trillions in Value March 202321 The Banks aim for greater access to RTGS will facilitate direct access to central bank money settlement for a wider range of participants.This will help to reduce tiering risks and promote competition and innovation.Source:Bank of England:The renewed RTG

248、S service key benefits April 202322 Regulated Liability Network:Potential RLN benefits webpage23 Fnality:What We Do webpage24 UKJT LawtechUK:Legal statement on digital securities February 202325 Law Commission:Digital Assets:Final Report June 202326 HM Treasury:Consultation on the first Financial Ma

249、rket Infrastructure Sandbox The Digital Securities Sandbox July 202327 HM Treasury:Future financial services regulatory regime for Cryptoassets-Response to the consultation and call for evidence October 202328 HM Government:The Bletchley Declaration November 202329 The US securities markets will be

250、moving to a T+1 settlement regime in May 2024.Source:US Securities and Exchange Commission:SEC Finalizes Rules to Reduce Risks in Clearance and Settlement webpage30 Ignites Europe:BlackRock money market fund tokenised on JPMorgan blockchain October 202331 Firms typically reserve the right to effect

251、mandatory redemptions or share class conversions without the investors explicit consent to do so,or are required to comply with court orders to prevent transactions.32 Financial Conduct Authority:DP23/4-Regulating cryptoassets Phase 1:Stablecoins November 202333 Financial Conduct Authority:Cryptoass

252、et registration:information for applicants webpage34 The Investment Association:D2F Hub webpage35 HM Treasury:Update on Plans for the Regulation of Fiat-backed Stablecoins October 202336 The Bank of England:The Digital Pound webpage37 The Bank of England:The digital pound:A new form of money for hou

253、seholds and businesses?February 202338 The draft Bill contains digital identity measures to underpin the important structures the government needs to put in place to secure digital identities.Source:UK Parliament:Data Protection and Digital Information(No.2)Bill webpage29UK FUND TOKENISATION:A BLUEPRINT FOR IMPLEMENTATIONThe Investment Association Camomile Court,23 Camomile Street,London,EC3A 7LLwww.theia.org InvAssocNovember 2023 The Investment Association(2023).All rights reserved.No reproduction without permission of The Investment Association