ICAEW has recommended additional safeguarding measures on specified investment cryptoassets in its response to the call for input from the FCA and Bank of England on the future of tokenisation.
ICAEW supports the Government’s Wholesale Financial Markets Digital Strategy, which sets out its approach to digitalising the UK’s wholesale financial markets. The strategy highlights areas of opportunity for improvements, including the tokenisation of assets which it says has the potential to deliver a step change in market efficiency.
In its response, ICAEW said that trust in tokenised financial markets depends on clear frameworks for financial reporting, taxation and independent assurance, as well as regulation and technology.
The Institute recommended applying additional safeguarding measures on specified investment cryptoassets, which include tokenised e-money or tokenised deposits.
The safeguarding of specified investment cryptoassets should remain anchored in the CASS 6 rules set out by the FCA, ICAEW said, with targeted additions from CASS 17 where tokenisation creates risks that CASS 6 does not currently address. For example, to strengthen protections for digital assets on insolvency.
The response added that any proposed regime should be driven by custody characteristics – such as how an asset is owned, accessed and protected – rather than token labels.
Finally, ICAEW welcomed clarity from the FCA on the role of trusts, settlement finality, tokenisation-model classification, and the information needed in a CASS resolution pack to support recovery on insolvency.
Polly Tsang, ICAEW Senior Financial Services Regulatory Manager, said: “Tokenisation has the potential to transform wholesale financial markets, but innovation must be underpinned by trust.
“We expect the adoption of tokenisation in financial markets will accelerate and unlock growth in the UK economy. As tokenised assets move into the regulatory perimeter, it’s vital that we embed the hard-won lessons of the 2008 financial crisis by ensuring robust safeguarding and custody arrangements that deliver equivalent protections for market participants”.
ENDS
Notes to editors:
The call for input looks to inform the joint roadmap between the FCA and the Bank of England building on the Government’s Wholesale Financial Markets Digital Strategy.
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