Looking to a future of DLT-enabled funds
A tokenised fund (also be known as a digital fund or a BTF (blockchain-traded fund) is one where shares or units in the fund, or a feeder fund for it, are digitally represented and can be traded and recorded on a distributed ledger. It uses code to mimic the functionalities of a traditional fund and replaces shares or units with tokens. It is not a form of uncertificated security recorded by the fund itself, but by the DLT ledger. Because of this, the differences between investing in a fund and owning the tokens that represent shares or units in the fund are not substantial. However, the costs associated with maintaining investor registers and other activity should be greatly reduced where ownership is represented using a token.
As part of our work on digital assets it appears that tokenised funds will become a reality within the UK market in the medium term.
The emerging prospect of such funds have triggered several initiatives ongoing in a number of leading fund domiciles. The IA is producing a series of papers in conjunction with CMS on a tokenised fund can be used to provide a superior experience for investors, alongside good practice and standard-setting guides.
The three papers published so far, shown on the next page, intend to help members navigate this new concept, with future papers planned on other aspects.
We are closely engaged with several initiatives and supporting the regulatory and legal angles of their work. We are monitoring progress and will be keen to ensure that the claimed benefits are readily realisable in practice next year and beyond.
This introductory paper explains the background to the concept and how they may develop in the UK, addressing subjects such as
Looking at the current and emerging UK regulatory environment, this second paper addresses questions like
The third paper explores the considerations firms should make regarding prospectus disclosures for regulated collective investment schemes. This is an evolving topic and the regulatory position and the requirements for the launch of such funds is still early.
