The Investment Association (IA) has published its second interim report from its Technology Working Group on further UK fund tokenisation and achieving “investment fund 3.0”.  It follows on from the IA’s first interim report exploring a blueprint for implementing tokenisation in UK investment funds through a staged approach and outlining a baseline model for tokenisation that could be used within the existing legal and regulatory framework. 

Continuing to work in collaboration with the FCA and Treasury, this second report looks at developments and feedback received since the first report and identifies the following two initial use cases for fund tokenisation, testing them with support from the UK authorities including via sandboxes: 

• fully on-chain investment markets, with tokenised funds investing in tokenised securities; and
• the use of tokenised money market fund units as collateral for non-centrally cleared derivative contracts.

Potential next stages of development for fund tokenisation identified by the report include: 

• Allowing on-chain fund settlement via digital money;
• Enabling funds to hold tokenised assets in their portfolio; and 
• Expanding the scope of solutions to include the use of public permissioned networks.

The report also includes an update on the actions identified in the first report, new recommendations to enable the broader implementation of fund tokenisation strategies, and model fund prospectus disclosures for firms to use.

The Technology Working Group will move to its third phase focusing on artificial intelligence in the UK's investment management sector, however the IA will continue separate work on tokenisation with an emphasis on implementation.