UK regulator backs ‘tokenised’ funds to attract younger investors

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By Phoebe Seers

LONDON (Reuters) -Britain’s financial regulator set out plans on Tuesday to encourage asset managers to “tokenise” their funds on blockchain, in a bid to attract younger investors.

Under the proposals, UK asset managers would be permitted to issue crypto tokens representing shares in their funds, using public blockchains such as Ethereum. Until now, tokenisation had been restricted to private blockchains.

Tokenisation – the creation of blockchain-based versions of financial assets – has seen renewed interest this year, driven by rising crypto prices and U.S. President Donald Trump’s support for the crypto industry. Proponents say it can improve efficiency and cut the costs of fund management.

BRITAIN SEEKS BIGGER ROLE IN CRYPTO

“Tokenisation has the potential to drive fundamental changes in asset management, with benefits for the industry and consumers,” Simon Walls, executive director of markets at Britain’s Financial Conduct Authority, said in a statement launching a consultation on the plans.

The move marks the latest step in Britain’s efforts to promote digital assets as it tries to boost the competitiveness of its asset management industry. Britain’s finance ministry last month announced plans to co-operate with the U.S. on crypto.

The Investment Association, an industry body which represents UK asset managers, said allowing public blockchains was “quite a significant stance change from the FCA” and would lead to more funds using it.

However, public blockchains have technological limitations which “may bring consumer protection, market integrity and market stability risks,” the FCA said, adding that firms must continue to meet their regulatory obligations.

TRADING APPS DRAW YOUNGER INVESTORS

The FCA also sought feedback on whether stablecoins – crypto assets that are pegged to a fiat currency – should be allowed to be used as settlement for the funds.

In a press briefing, Nike Trost, interim director for buy-side at the FCA, acknowledged that the benefits could take a while to materialise, as firms upgrade their technology.

The regulator said it was considering action as technology reshapes consumer expectations around investing. Nearly half (47%) of the users of trading apps are aged 18-34, the FCA said, and such platforms typically sell low-cost investments in shares, or fractions of them, rather than funds.

The FCA added that the possibility of allowing regulated funds to invest directly in cryptocurrencies would be examined in a future review.

($1 = 0.7541 pounds)

(Reporting by Phoebe Seers. Additional reporting by Elizabeth Howcroft. Editing by Mark Potter and Louise Heavens)