Tokenisation creates a digital representation of a real thing. It’s used to protect sensitive data or efficiently process large amounts of data. You can also transfer ownership of your real-world assets into tokens using distributed ledger technology (DLT) known as blockchain.
Enabling tokenisation
The Financial Conduct Authority (FCA) has set out its plans to enable wider adoption of tokenisation in asset management.
It says the move could enable significant changes in the sector, driving competition and increasing choice.
The FCA’s proposals include:
guidance on operating tokenised fund registers
a streamlined dealing model for fund managers, helping to process buying and selling in authorised traditional or tokenised funds
a roadmap to address barriers to using public blockchains and settling transactions entirely on the blockchain
discussions about how tokenisation models could evolve and how regulation may need to change.
Limitations for digital assets
Depending on their structure, tokenized assets may need to meet strict requirements as securities. These include disclosure of potential investors and rules about how they’re offered and traded. Strict rules concerning identity help prevent financial crime. However, these can become difficult to administer for tokenised assets. Rules must also protect investors from insider trading and market manipulation. More widely, applying requirements for legal rules to prove ownership, such as contracts, need reinterpreting. Because tokenization is global, international implications also need consideration.
How things may change
Existing rules already allow you to purchase cryptocurrencies and to include them in your Will. However, encouraging wider use of DLT for your assets requires greater clarity and confidence.
Current legislation concerning personal property and assets remains a discussion point for estate planning. The Property (Digital Assets Etc.) Bill is progressing through parliament. It adds a new type of asset to the 19th century definitions. Legally traditional property is currently:
things you possess such as physical objects
things in action such as personal property claimed or enforced through court action.
The Law Commission recommends a new ‘third category’ of property which could account for assets such as cryptocurrency. DLT stores transaction records across multiple locations rather than relying on a single, centralised database. This provides security and encryption benefits to protect against cybercrime. The new third category will help improve laws concerning digital assets to provide a flexible framework.
The FCA says it is committed to supporting innovation to help the UK’s asset management sector continue to grow. Tokenisation can change how people invest and create regulations to help asset managers innovate and stay competitive.
Have you included your existing cryptocurrencies and other digital assets in your Will?
If you’re considering them for asset management and would like to write a Will to include them, please get in touch.
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