Fund managers claim blockchain funds could fill advice gap

Fund managers claim blockchain funds could fill advice gap
(Getty Images)

The Investment Association has called on the government and the Financial Conduct Authority to introduce a new fund class that uses blockchain technology - a move it has said will help fill the advice gap.

The industry body said the funds industry was on the verge of a major technological transformation, at the centre of which was the “investment fund 3.0”.

This fund, known as a tokenised or digital fund, will be traded and recorded on a distributed ledger using blockchain technology, and shares or units will be distributed digitally.

The IA said this "future fund landscape" could allow for more engagement and customisation, while maintaining important consumer protections.

It said: "This could include the provision of a greater variety of portfolios tailored to the specific needs of individual investors and a wider range of financial advice services to address the current advice gap in the UK.

"The IA also recommends the regulator and industry work together to roll out of the next generation of digital information provision and disclosure to consumers, such as KIIDs and reporting."

Chris Cummings, the IA's chief executive, said the investment management industry had a vital role to play in helping people provide for their futures into old age, and with the ever-quickening pace of technological change, the investment management industry, regulator and policy makers must work together to drive forward innovation without delay. 

“Greater innovation will not only boost the overall competitiveness of the UK funds industry, but will improve the cost, efficiency and quality of the investment experience,” he said.

Franklin Templeton launched the first mutual fund which used blockchain in the US last year, with the OnChain US Government Money fund.

According to the Financial Times, financial technology group FundAdminChain is developing live tokenised funds alongside the London Stock Exchange and four global asset managers.

The IA is also lobbying for UCITS and domestic funds to be able to hold crypto assets, saying recent market volatility has emphasised the need to clarify the “rules of the road” for the asset class.

“[This] will help mitigate the risk of loss and harm to consumers and ensure an appropriate regulatory perimeter.”

Crypto assets have increased in popularity in recent years, with more than 4 per cent of adults owning a cryptocurrency in January this year, according to the FCA.

However, the value of the assets has fallen sharply, from a market capitalisation of almost $3tn (£2.5tn) in late 2021 to around $900bn (£756bn).

The Bank of England recently warned about the volatility of crypto assets in its bi-annual Financial Stability report.

The UK’s central bank said a number of vulnerabilities were exposed within crypto asset markets similar to those exposed by past episodes of instability in more traditional parts of the financial system.