The UK government is ploughing ahead with plans to become a leading centre for the adoption of tokenisation. In April, during UK FinTech week, it announced a package to encourage the use of payment technologies, much of which will involve tokenised assets. 

Chris Woolard, EY Partner, has been appointed Wholesale Digital Markets Champion to spearhead its tokenisation efforts. The UK and US have also created the Transatlantic Taskforce for Markets of the Future to collaborate on digital opportunities. This is expected to report back to both finance ministries in the summer. 

What is tokenisation?

Tokenisation is essentially the digital representation of real-world assets, says Polly Tsang, Senior Financial Services Regulatory Manager at ICAEW. She gives the example of someone wanting to invest in the Shard. “If you’re able to tokenise it – to have it in a digital form – then the idea is you could own a bit of it, as opposed to the whole Shard,” she says. “You then increase your market for the asset, because selling the Shard is difficult and there aren’t many buyers.

The main benefit is that it unlocks liquidity, Tsang explains, both from a buyer and seller side. “Instead of having to sell the whole asset, you can now use parts of your asset as collateral, and for additional funding.” 

“The second benefit is the process should be cheaper – you are currently able to achieve similar aims through securitisation, but this is hugely complicated and expensive and generally reserved for institutional investors.”

“That is not to say that tokenisation is without its hurdles and drawbacks, for example, a large upfront cost in infrastructure to allow for the asset rails”, says Tsang. 

The easiest assets to tokenise currently are equities or money market funds, with the Financial Conduct Authority (FCA) issuing a consultation paper on this in October 2025. But tokenisation, in theory, can have a much broader reach.  “The reason it’s attracting a lot more noise now is because we may be closer to having the money rails to do this,” Tsang adds. “You require the real-world asset to be tokenised, but you also require the money to move quickly, ideally instantaneously.”

This is through atomic settlement, based on blockchain technology, which means transactions can be settled immediately, rather than having to wait for days as can be the case with the traditional payment networks.

Big banks have started tokenising

It’s early days in terms of organisations making use of tokenisation, but there are examples of this having an impact. The UK government is developing a Digital Gilt Instrument (DIGIT) using the distributed ledger technology (DLT) central to tokenised assets and currencies, announcing in February that it was working with HSBC as its platform provider. 

There’s also potential to use it in areas such as house purchases, says Tsang – a possibility that the FCA consultation brings closer to reality. “When you buy a house, you have to go to a mortgage broker, you have lawyers holding your money on escrow and a number of middlemen,” she says. “The idea is that you can put it on a blockchain and automate a lot of these checks, and it should, in theory, be a much faster, cheaper and safer process.” 

Questions around accounting for tokenised assets

However, there are some issues that have yet to be thought out. Tsang highlights the potential for legal issues to arise as a result of a lack of clarity. “If you’ve managed to own a bit of the Shard, what happens if someone then wants to sell the entire asset? Or if it burns down, is insurance going to pay out on your small bit? Then there are issues with the different blockchains, because not everyone’s going to use the same one, and they’re not currently interoperable.”

“There also are questions around how tokenised assets will be accounted for going forwards, which will be in part determined from answers to the above legal questions, but also how to account for and tax the potential new forms of settlement involved in tokenisation, such as cryptocurrencies and stablecoins, which is something ICAEW has been closely examining.” 

The profession needs to learn as it goes

Tsang describes the current situation for accountants as “unchartered territory”. “Everyone is learning as they go,” she says. “This is why ICAEW set up the Digital Assets Working Party back in 2023, bringing together experts across accounting, tax, law, academia, regulation and technology to share knowledge and help inform thinking in this space.”

“We at ICAEW are using our public interest mandate to convene these important conversations with all the stakeholders, from practitioners, to industry, to government, regulators and standard-setters."