Unlocking the power of securities tokenisation

On 6 July UK Finance launched a report on securities tokenisation. This is a deep dive into the world of digital transformation from a wholesale markets perspective. It considers what the UK should do to maintain and enhance its leading role in international markets.

What is securities tokenisation and why does it matter? 

Securities tokenisation involves the digital representation of real financial assets using distributed ledger technology. Securities tokenisation, and the corresponding use of distributed ledger technology and smart contracts, are a key piece of the digitalisation journey which will evolve UK capital markets.  

There are multiple benefits that can be derived from securities tokenisation, ranging from swift settlement to a reduction in counterparty risk. Moreover, the fractionalisation of assets from tokenisation would grant investors better access to UK markets. Altogether, these potential benefits would help bolster the UK’s competitive position.  

The report and its findings  

While the UK is already headed in the right direction, we believe more could and should be done for the UK to position itself at the international forefront of this evolution. We therefore commissioned Oliver Wyman to explore how the UK can proceed in the right way, protect the relevance of its capital markets and lead the world in the field of securities tokenisation. Through interviews and insightful discussions with government representatives, senior industry members, heads of digital departments as well as legal experts, the report sought to address three questions. 

  1. What is the UK’s position today compared to other jurisdictions? 

  1. Why does tokenisation (and the UK’s position on it) matter?  

  1. What are the next steps for the UK?  

From this research, it emerged that the UK is behind other jurisdictions, but not irrevocably so. There are strengths in the UK’s offering, such as its internationally well-regarded common law, but there have not yet been any major tokenised issuances in the UK. The UK can close the gap and lead the way internationally if the potential of digitalisation is harnessed across the trade lifecycle, and not just with issuance. But how can the UK best do this?  

The road ahead 

Government and industry must act now in partnership with focus and commitment. Key actions, embedded in three missions, have been identified for key stakeholders both in the short term (next 18 months) and in the medium term (18 months to five years). 

  • Mission One: Enable innovation and experimentation, underpinned by legal and regulatory certainty. A successful roll-out of the FMI sandbox and an issuance of a digital gilt could prove key to this mission. 

  • Mission Two: Foster a UK digital market by promoting interoperability and safe innovation at-scale. This mission will significantly rely on the development of a national infrastructure and the establishment of shared and agreed standards for tokenised securities. 

  • Mission Three: For the UK to become a leader in global standards for the tokenised securities market. For this mission, the UK government will have to foster discussions around supranational standards for securities tokenisation by collaborating with international jurisdictions.  

We are excited for the future of securities tokenisation in the UK, and we look forward to continuing our dialogue with industry, government, the legal community and regulators to establish the UK as an international leader. This report is just the beginning. 

You can read the full report by clicking on Unlocking the power of securities tokenisation. Keep monitoring our website for upcoming blog posts from our team, which will further explore our findings and the importance of securities tokenisation.  

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