The funds industry is on the verge of a major technological transformation, according to the latest report from the Investment Association (IA).
Launched at the IA’s Annual Conference, the report, ‘Investing for the future: three potential paths for a tech-powered UK fund industry’, outlines a vision of the ‘Investment Fund 3.0’ built on technological innovation, a forward-looking regulatory framework, and improved engagement with consumers.
At the heart of the vision for Investment Fund 3.0 will likely be the increasing adoption of tokenisation, which will ultimately reduce costs for consumers and improve efficiency in the delivery of funds, through quicker settlement and improved transparency of transactions. Tokenisation may also broaden the assets held within a fund by increasing access to private markets and illiquid assets.
The IA is calling on the government and FCA to create a taskforce to harness the benefits of decentralised finance, and to work at pace to establish a framework for tokenised funds to operate in the UK.
The report also identifies a potential role for native digital assets in the funds of the future. This would be dependent on new regulation, with the IA proposing the establishment of regulated routes for native digital asset exposure, and an assessment of the eligibility of cryptoassets within UCITS and domestic funds for well-diversified portfolios.
Recent market volatility highlights the importance of defining the ‘rules of the road’ for cryptoassets, which will help mitigate the risk of loss and harm to consumers and ensure an appropriate regulatory perimeter.
For consumers, the future fund landscape would offer more engagement and customisation, while maintaining important consumer protections. 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, Chief Executive of the Investment Association, said: “The investment management industry has a vital role in helping people provide for their futures into old age. 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.”