On 24th November, the Investment Association gave a green signal to British investment managers to venture into the world of tokenized funds. Tokenization is the method of issuing a digital representative of an asset on a blockchain. The assets may include financial assets such as bonds and equities, and physical assets such as art or real estate. Some assets may also include intangible assets such as data, identity, and intellectual property (IP).
Tokenization has vast potential in the field of cryptocurrencies. With the aid of blockchain technology, the landscape of the industry may fundamentally change. It is almost certain that tokenization or fractional ownership of funds will reduce the costs of trading. It will also increase transparency in transactions, and enable investors to purchase a broader range of assets. Michelle Scrimgeneour, the CEO of Legal and General Investment Management stated that investment portfolios may gain because of more liquidity, superior risk management, and better efficiency. Moreover, after this approval, corporations such as M&G, Schroders, and Blackrock can work with the British government’s finance ministry and the FCA. This in turn may lead to many opportunities and significant advancements in the finance industry.
Tokenization of funds involves splitting assets into smaller digital tokens. Since the FCA has authorized British investment managers to develop tokenized funds, blockchain technology can promise cheaper and more transparent trading. It can also expand investor access to a diversified asset portfolio. Blockchain technology’s transparency feature can be highly beneficial in asset management. It also aligns with the British government’s economic strategy after Brexit. Undoubtedly, the British government is keen to ensure that the asset management sector has competitive advantages, more liquidity, and cutting-edge technology.
The Investment Association and other similar institutions is following the global trend by accepting tokenization of funds. According to a report published by Calastone, 39% of Asian firms and 38% of American firms are now leading in adopting tokenized funds. Comparatively, only 27% of firms in the UK and Europe have accepted these. It is nevertheless evident that a fairly high percentage of asset managers in the US and Asia are going to emphasize tokenized products. Once the UK becomes an active participant in the token funds arena, asset management may undergo significant positive changes.
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The approval by British investment organizations for token funds is a welcome step for crypto investors and users worldwide. This essentially indicates that the attitude of the government is becoming more positive about cryptocurrencies. Blockchain technology’s full potential is also being utilized for the larger good of the financial sector. It will also experience a paradigm shift. Additionally, the concept of asset management may change significantly in the future.
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