The UK’s asset management industry is pressing the government to establish a new class of fund which utilises blockchain technology, representing the way in which financial firms are drawing on the structure at the base of the crypto currency market.
A blockchain refers to a digital ledger of transactions which is maintained by a network of computers, such that the information in the block is very difficult to hack or alter.
Blockchain technology provides a secure way for individuals to make deals directly with each other, without requiring an intermediary like a government or a bank.
The Investment Association, that is, the trade body which represents the UK’s asset management industry and which manages almost £10 trillion on behalf of clients across the globe, will push for the Government and City regulator to keep up with the accelerating pace of tech and to approve blockchain traded funds.
These funds will provide digital tokens to investors, as opposed to traditional shares or fund units, and have the potential to widen the assets held within a fund by increasing access to private markets and illiquid assets.
According to the Investment Association, important savings in cost could be achieved for investors as a result of using the digital ledgers known as blockchain, driving significant improvements in efficiency within the existing laborious processes needed in the buying and selling of mutual funds.
The Investment Association will also propose that a new task force be assembled in order to survey the way in which distributed ledger technology could speed up the creation of new products and services, and provide more investors with the ability to tailor their portfolios towards holdings in private companies and cryptocurrencies.
Chief executive of the Investment Association, Chris Cummings, expressed how important it is that policymakers, regulators and people who are a part of the investment industry, work together in an effort to “drive forward innovation without delay”.
Cummings adds, “greater innovation will boost the overall competitiveness of the UK funds industry and improve the cost, efficiency and quality of the investment experience”.
Blockchain-traded funds, otherwise known as tokenised or on-chain funds, may potentially be approved in market by the end of the second quarter of 2023, if regulatory approval is provided by the Financial Conduct Authority.
The Investment Association is also pushing the FCA to judge whether traditional mutual funds should be allowed to own cryptocurrencies, notably bitcoin, as well as other digital assets.
The total value of the cryptocurrency market has fallen by over $2 trillion since the high of November 2021 as investors globally have abandoned speculative financial assets.
The huge decline in value has concerned regulators and been the cause of a multitude of more stringent rules in order to protect investors.
Cummings expresses this worry, “the recent volatility highlights the importance of defining the ‘rules of the road’ for cryptoassets, which will help to mitigate the risk of harm to consumers”.
City minister and economic secretary to the Treasury, John Glen, says that the government aims to “remove disincentives” which prevented UK fund managers from keeping cryptoassets in their portfolios.
According to Glen, “by making [the UK] a hospitable place for crypto, we can attract investment, generate swaths of new jobs and create a wave of groundbreaking new products and services”, an exciting prospect.