Government urged to take global lead on digitised capital markets to boost UK’s competitiveness
The government should take the lead in encouraging the digitisation of the UK’s capital markets to boost the City’s competitiveness, UK Finance has argued.
In a new report released today by Oliver Wyman and UK Finance, the government has been urged to take a bold approach to ‘tokenisation’ or risk losing investment to other parts of the world.
“The UK is behind some other jurisdictions with regards to tokenised securities issuances, but it is not irrevocably so,” it said.
Tokenisation is the process of converting financial assets into digital tokens that can be traded using blockchain technology. Backers suggest the technique can cut costs and unlock investment into a wider range of assets.
Real estate and infrastructure are among the assets where tokenisation could enable much greater investment by dividing the asset into much smaller chunks which could then be traded.
While some in the sector had felt that the UK’s legal system had not yet developed to include digital assets, the report makes clear that recent developments – including a recent Law Commission report into digital assets – have paved the way for development in the sector.
On the regulatory front, the recently passed Financial Services and Markets Act allows the Treasury to introduce regulatory sandboxes for distributed ledger technology projects.
The report suggests that prompt action from government and regulators can ensure that the UK takes a leading position in tokenisation.
“There is a growing consensus among capital markets participants that tokenisation…can transform the financial system,” the report said.
“More can and should be done to plant a flag and signal to the industry that the UK government is taking this seriously. There is otherwise a risk that innovative firms will move elsewhere,” it warned.
The report suggested that legislators should issue a digital gilt to promote interoperability. It also argued that regulators should encourage the industry to develop voluntary standards around the new securities.
The UK needs to become a “leader in global standards” by collaborating with other jurisdictions, the report argued.
Bob Wigley, chair of UK Finance, said: ““Securities tokenisation is likely to transform financial markets, through delivering lower costs, lower risks, and wider market access. But without bold action the UK risks falling behind more forward-leaning jurisdictions.”