Britain’s banks are on the lookout for a government roadmap that can pave the way for tokenising stocks and bonds. This urgent need arises from the risk of the country losing its standing as a prominent financial hub. In a report released on Thursday, trade association UK Finance emphasized the importance of charting a course for digital representations of assets like stocks, bonds, loans, and real estate.
The concept of tokenised assets involves their exchange on distributed ledger technology (DLT), the same technology used for cryptocurrencies. This method ensures seamless tracking of transactions, validates ownership, and eliminates the need for cumbersome paper trails.
The report, which was co-authored with consultants from Oliver Wyman, highlights that tokenised issuance currently represents only a small fraction of traditionally issued securities on exchanges. Specifically, digital bond issuance accounted for just 1% of the $20.6 trillion in long-term fixed income issued in 2021.
When compared to locations like Singapore, Hong Kong, France, and Germany, Britain’s tokenised asset issuance has been quite minimal. To gain momentum in this area, the report suggests that Britain should collaborate with the industry and establish partnerships.
According to the report, the public sector should play a crucial role by providing a clear and supportive roadmap for tokenisation. It should also encourage collaboration between the public and private sectors to develop the necessary infrastructure and standards. Failure to take action would result in the UK missing out on an opportunity to solidify its position as a top global financial center.
Although estimates on the impact of tokenisation vary, there is a growing consensus that it could be transformative for markets. The report notes that industry participants agree that tokenisation would enhance liquidity across both new and existing asset classes. However, opinions differ on which asset classes hold the most value.
In a recent development, a new financial services law was approved, paving the way for the launch of a platform later this year to test the use of DLT in market infrastructure.
To foster experimentation with tokenised securities, the report urges the finance ministry and Financial Conduct Authority to take immediate action beyond issuing digital UK government bonds.
In conclusion, Britain’s banks are seeking a government roadmap to enable the tokenisation of stocks and bonds. The report underscores the significance of this initiative to maintain the country’s position as a leading financial center. With the potential for transformative impact, tokenisation holds the promise of increased liquidity across various asset classes. To seize this opportunity, collaboration and infrastructure development are vital, requiring the public sector’s support and guidance. Failure to act promptly could have repercussions, hindering the UK’s ability to consolidate its global standing in the financial realm.
