Fund manager Schroders is pioneering the tokenisation of traditional financial assets. Marita McGinley, Schroders’ head of digital asset strategy, and lawyer Stephanie Magnus from Baker McKenzie Wong & Leow, say digital assets will make financial products more scalable and personalised – but greater cross-border cooperation is critical.
A significant shift is underway in the world of finance. Tokenisation and blockchain are transforming asset management, propelling us from paper to digital assets in mere decades.
For asset managers, embracing tokenisation is necessary to remain competitive in an increasingly digital landscape: making our ecosystem more efficient, accessible, and interconnected than ever before.
More scalable, more personalised
One of the core promises of tokenisation is its ability to democratise investment opportunities. By enabling the digital representation of assets on a blockchain, tokenisation allows for fractionalisation, making financial products more scalable and personalised.
This breakthrough tears down long-standing barriers to entry, opening doors for a broader range of investors to participate in markets previously beyond their reach.
In the short term, tech-savvy retail investors and forward-thinking institutional investors will be the primary beneficiaries of this democratisation. However, as the technology matures and becomes more mainstream, its benefits will likely extend to a much broader segment of the population.
Tokenisation will reduce value leakage across the financial value chain, eliminating the need for constant data conversion between systems
In a study conducted by Calastone, 37% of Asian respondents, comprising asset managers, fund administrators, custodians and management companies, are already implementing tokenisation projects. Many, including Schroders, are pioneering the tokenisation of traditional financial assets by placing them in digital wrappers. This innovative approach aims to unlock new products free from conventional constraints such as long settlement times and restrictive trading hours.
The result offers several key benefits. First, it allows for improved efficiency as certain assets, including funds, are particularly well-suited due to potential improvements in settlement time, distribution efficiency and intermediary reduction.
The second is enhanced transparency. In the asset management space, firms are trying to translate what is done in portfolio management entirely on-chain. This includes developing on-chain capabilities for record-keeping, valuation, execution, and client servicing. Blockchain’s immutable transaction records provide valuable holding information, aiding issuers in liability management exercises with a clear, indisputable history of asset ownership and movements.
Additionally, tokenisation will reduce value leakage across the financial value chain, eliminating the need for constant data conversion between systems, dramatically lowering ownership costs and boosting scalability.
Finally, the knock-on effect of tokenisation will potentially drive job creation in the finance and fintech sectors, spur financial product innovation, and contribute to economic inclusion by providing access to a broader range of investment products.
Initiatives like Project Guardian pave the way for standardised policies and protocols for managing risks in tokenised markets
Regulatory involvement will determine the scale of success
The widespread adoption of tokenisation hinges on several key components. One of these is a robust regulatory framework. Current regulations provide a stable foundation, but further development is needed to fully realise this technology’s potential while safeguarding investors and maintaining market integrity.
Financial services regulators (FSRs) are crucial in creating policies that balance innovation with risk management. FSRs must work closely with industry leaders to understand the nuances of tokenisation and craft regulations that foster innovation while protecting investors and maintaining market stability.
Governments, too, have a vital role in creating a more conducive environment for tokenisation in the mid- and long-term. This could involve tax incentives for tokenised investments, regulatory sandboxes for testing new tokenisation models, and education initiatives to enhance public understanding.
According to KPMG, Singapore, Hong Kong (SAR), China, and Switzerland are fast emerging as competitive hubs for asset tokenisation. These markets have shown strong commitment through government support, robust legal frameworks, and advanced market infrastructure – all key factors enabling a competitive tokenisation market.
However, for regulations to be truly effective, industry involvement must also be present.
Initiatives like Project Guardian, spearheaded by the Monetary Authority of Singapore, pave the way for standardised policies and protocols for managing risks in tokenised markets. It brings together associations, financial institutions and regulators across different jurisdictions in a collaborative effort to run pilots across asset classes to explore open and interoperable digital asset networks, establish standardised policies and protocols to manage risks and support responsible innovation.
While the potential benefits of tokenisation are significant, challenges and potential risks such as cybersecurity threats and even increased market volatility, continue to exist. Fundamental frameworks remain crucial and must be adapted with necessary overlays, making legal partnerships and collaboration essential. These robust regulatory frameworks will be critical to mitigating these risks and building investor trust in tokenised assets.
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Critical cross-border regulatory cooperation
Blockchain technology’s cross-border nature presents opportunities and challenges for regulators and market participants, making enhanced regulatory cooperation paramount.
Harmonising financial standards is crucial and initiatives like Project Guardian are indispensable for creating a sustainable digital asset ecosystem that balances commercial innovation with sound policy frameworks.
Following the partnership with policymakers in Japan, Switzerland and the United Kingdom, it is crucial to further build out these collaborative efforts globally to unlock the full potential of digital assets, driving economic growth while ensuring financial stability and trust.
There is no doubt that blockchain technology and tokenisation can revolutionise financial markets, but such a future will not materialise overnight. With continued innovation, regulatory evolution, and industry collaboration, the benefits of a more accessible, efficient, and inclusive financial ecosystem can be reaped in the near future.
*Marita McGinley is head of digital asset strategy at Schroders, and Stephanie Magnus is a principal at Baker McKenzie Wong & Leow in Singapore.
