The Financial Conduct Authority (FCA) in the UK has recently released a discussion paper which outlines several ways to enhance asset management, including the use of tokenization.
According to the regulatory body, digital tokens and blockchain technology can provide new opportunities for fund participation.
Tokenization is expected to streamline the process of acquiring shares in funds, as it eliminates the need for an additional shareholder registry due to the immutability of fund records on distributed ledgers.
This can also help to reduce the involvement of third parties and additional fees, which can often complicate the process.
Furthermore, the FCA believes that tokenization can improve the efficiency of fund management by saving costs, increasing transaction speed, and reducing potential administrative errors.
However, the FCA also highlighted the potential issues that may arise with tokenized asset management, including strict regulations that may prohibit companies from using a distributed ledger, as well as the risk of security breaches.
In the long run, the FCA suggested that tokenization could benefit retail investors by allowing them to directly own shares of funds as the blockchain becomes more deeply integrated into the wholesale market.
The FCA has invited all interested parties to provide feedback, comments and proposals on the document before May 22.
In recent years, major financial institutions such as Citibank have expressed their belief that tokenization will be the future of the financial and payments industry.
Circle CEO, Jeremy Allaire, has also suggested that tokenization can enhance the liquidity of corporate securities and other assets without systemic risks.