Unlocking the power of securities tokenization

UK Finance recently released a report on securities tokenization, delving into the world of digital transformation from a wholesale markets perspective. The report aims to guide the UK in maintaining and strengthening its leading position in international markets.

Securities tokenization involves representing real financial assets digitally using distributed ledger technology. This process, along with the use of smart contracts, is a crucial aspect of the digitalization journey that will shape UK capital markets.

There are several benefits associated with securities tokenization, including faster settlement times and reduced counterparty risk. Additionally, tokenization enables fractional ownership, granting investors improved access to UK markets. These advantages can enhance the competitive position of the UK in the global market.

The report, conducted in collaboration with Oliver Wyman, explores three key questions:

1. What is the UK’s current position compared to other jurisdictions?
2. Why does tokenization and the UK’s stance on it matter?
3. What are the next steps for the UK?

Research reveals that the UK lags behind other jurisdictions in terms of tokenized issuances, but it is not irreversibly behind. The UK possesses strengths such as its well-regarded common law. To bridge the gap and lead internationally, the potential of digitalization must be harnessed across the entire trade lifecycle, rather than solely focusing on issuance.

Moving forward, government and industry must collaborate with focus and commitment. The report outlines three missions:

Mission One: Enable innovation and experimentation while ensuring legal and regulatory certainty. The successful implementation of the FMI sandbox and the issuance of a digital gilt can be crucial in this regard.

Mission Two: Foster a digital market in the UK by promoting interoperability and safe innovation at scale. Establishing a national infrastructure and agreed standards for tokenized securities are vital for achieving this mission.

Mission Three: Position the UK as a leader in global standards for the tokenized securities market. The UK government should engage in discussions with international jurisdictions to foster supranational standards for securities tokenization.

The report marks the beginning of an exciting future for securities tokenization in the UK. Continued dialogue with industry, government, the legal community, and regulators will be instrumental in establishing the UK as an international leader. Readers are encouraged to access the full report, “Unlocking the Power of Securities Tokenization,” and stay tuned for upcoming blog posts that further explore the findings and the significance of securities tokenization on the organization’s website.

You can view and download the full report below.

Photo by JJ Jordan on Unsplash

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