Bob Wigley speech at the Securities Tokenisation Event

Bob Wigley, Chair of UK Finance - speech

Good afternoon, everyone. I’m Bob Wigley, Chair of UK Finance.

Thank you for joining us here, and a particular thank you to Oliver Wyman as our report partners and for hosting us today.

Over the last six months, working closely with the team at Oliver Wyman, we have engaged with our members, investors, government ministers and officials, regulators and other trade bodies who have all provided invaluable insights to help shape our report which we are launching today.

We will be hearing shortly from Andrew Griffith, Economic Secretary to the Treasury who will set out the government’s approach in this area.

And then we’ll hear from the report’s authors, before a  panel discussion of key market participants.

Some of you will know that new and emerging technology is a key passion of mine. I have just come from the Sky News studio where I was talking about this work on Ian King live.

Last year, at our annual dinner, I said I would like to see a more proactive partnership between government, regulators and our industry to seize the opportunity new technologies offer, not just address the risks.

And securities tokenisation presents us with one very important opportunity.

The risk as I see it is that, without continued bold action, the UK could fall behind other jurisdictions.

Tokenisation is not about crypto – what we are talking about is the digital representation of real financial assets: from equities to bonds and including illiquid assets like real estate and private equity funds.

There has been a real upsurge in interest in this area, particularly as central banks have embraced digital technologies in the form of CBDCs.

The current situation

The current position is that tokenisation globally is in its infancy. The most common use case, digital bond issuance, is not even 1 per cent of the $20.6 trillion issued globally in long term fixed income instruments in 2021.

Digital bond issuance to date has taken place in countries such as Singapore or Switzerland. And, despite their reputation for red tape and bureaucracy, the European Union has moved ahead in terms of  experimentation.

Concerted action from the UK is important to protect our position as a global financial centre.

We welcome the government’s recent focus on the tokenisation of regulated securities, which can support a regulatory regime that enables dynamic international cooperation advocating for proportional, outcomes-focused, and technologically neutral regulation.

The recent Law Commission report on digital assets with helpful recommendations for reform is also an important step.

As regulation evolves, we must clearly distinguish between unbacked cryptocurrencies and applications of distributed ledger technology to real world assets. This report specifically addresses the second category.

Benefits of Tokenisation

What really draws me to tokenisation is efficiency. There are challenges around the cost and complexity of our current capital markets but what tokenisation seeks to do is transform the system with efficiency gains in reporting, trading, and banking infrastructure.

Digital tokens with instant settlement across multiple counterparties could reduce counterparty, liquidity and operational risks. Collateral requirements could decline.

Tokenisation could also widen access. It could increase the customer base for assets, particularly illiquid ones that involve significant paperwork currently. In a tokenised world, investors could buy a fraction of a financial asset rather than the whole thing, increasing the potential pool of retail investors.

The Recommendations

So, what’s to be done?

The report makes a series of recommendations that focus on enabling the UK to protect and build on its current global position as a financial centre. These are grouped into three key areas.

Firstly, we need to enable market innovation and experimentation, underpinned by legal and regulatory certainty. The report makes a series of recommendations that will help provide this certainty. However, most pressingly, HM Treasury should roll out the first FMI sandbox for the use cases identified as most pressing.

Secondly, we need to foster a flourishing UK digital market by promoting interoperability and safe innovation at-scale. Liquidity will remain fragmented, and the market will not scale without interoperability. Defining technical and legal standards will be the way to ensure connectivity between solutions.

A good starting point would be for HM Treasury, the FCA, and the Bank of England to encourage market participants to convene, perhaps through an industry standards board, to develop voluntary standards around tokenised securities.  

Thirdly, the UK needs to become a leader in global standards for the tokenised securities market.

If the UK successfully builds a flourishing digital market with deep liquidity, it will also need to ensure its markets are globally connected.

It will be critical to be actively shaping discussions with other jurisdictions around the supra-national standards that will enable the interoperability of distributed ledger technology networks over time.

By doing so there is an opportunity for the UK to establish itself as a global leader by convening different jurisdictions to agree the path forward.

Concluding remarks

It is not clear how quickly tokenisation will become mainstream, but there is a growing groundswell of interest and activity taking place and it looks like a question of when, not if.

The conversation around securities tokenisation is however just the beginning of a much wider digital transformation – including everything from digital money to digital identification.

Technological innovations in all these areas are developing fast. Capitalising on this represents a generational opportunity for the UK to proceed smartly, protect its capital markets and lead the world.

This report is not the final word. The UK has already built positive momentum around tokenisation but we must keep going. I look forward to collaboration on this in the months and years ahead.

Thank you for listening and I’d now like to welcome Andrew Griffith to the stage.