UK Govt-Backed Report Urges Firms to Execute Tokenization Strategies

A technology working group backed by the U.K. government is urging firms to execute tokenization strategies in collaboration with their peers in a new report published Tuesday.

Tokenization is the digitization of real-world assets mostly through the use of blockchain technology. Financial institutions around the world are experimenting with tokenization and related settlement systems to improve the efficiency of traditional markets.

Based on industry feedback, the working group says the focus needs to be on on-chain fund settlement with digital money. It also said funds must be able to hold tokenized assets and utilize public permissioned networks that allow verified users to access the blockchain.

Members of the Technology Working Group include the U.K. government's finance arm and the Financial Conduct Authority, which regulates the country's finance sector, including crypto. This new report builds on the group's November report where it urged regulators to establish clarity for tokenization as firms continue to take an interest in it.

The report also said that the tokenization of money market fund units used as collateral could help "accelerate the relevant settlement process increasing the opportunities for this use case."

The government will continue to engage with firms on the possible benefits of adding distributed ledger technology to sovereign bonds, the report said.

The group's third phase will focus on artificial intelligence.