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The UK could benefit from a £33bn economic boost if it accelerates plans to digitise its financial markets, said the chair of a new task force, adding that the country has a “better story than people give it credit for” in tokenising assets.
Chris Woolard, who the Treasury appointed this year as wholesale digital markets champion, told the FT there was “a huge prize” for the UK if it pressed ahead in areas such as issuing a sovereign bond on the blockchain and confirming it can be used as collateral.
“This is about the UK’s right to play in the next generation of financial markets,” said Woolard, in an interview a few days before the publication on Monday of his report to the chancellor on how to develop a tokenised wholesale financial markets system.
His report sets out a 12-month plan to focus on nine key areas, led by a task force of 54 financial institutions, ranging from more traditional groups such as BlackRock, JPMorgan Chase, Morgan Stanley, UBS and Barclays to specialist cryptoasset firms such as Coinbase and Circle.
The aim is to harness the distributed ledger technology that underpins cryptocurrencies such as bitcoin to transform the way a whole range of financial assets are traded, in order to improve the speed, efficiency and security of how transactions are executed, settled and cleared.
“Tokenised markets offer a significant opportunity to the UK in terms of efficiency, the potential for innovation and to defend our global position in established markets,” the report says.
“If implemented at scale, tokenisation could improve the efficiency of wholesale markets, free up capital for growth investment, support new sources of revenue and strengthen the UK’s competitive position.”
A key objective for the task force is to demonstrate by next year that tokenised assets can be used as collateral to raise cash through repo markets.
“We are adopting a cross-sectoral approach to digitalising specific use cases, starting with an end-to-end repo transaction,” the report says.
It estimates the global market for tokenised assets — real-world assets such as shares, bonds and property that are represented by tokens on distributed ledger technology — could reach $88tn by 2035.
Tokenisation could increase UK economic output by up to £33bn and generate an extra £14bn of taxes in the next decade, according to estimates by Barclays and PwC based on the market taking off as expected and the UK becoming one of its leading centres.
There has been widespread criticism of the UK’s approach to digital asset regulation, particularly the extra restrictions the Bank of England has proposed for systemic stablecoins.
However, the BoE recently watered down some of the restrictions in the final version of its stablecoin rules. The Financial Conduct Authority also eased some rules for non-systemic stablecoins in the final set of cryptoasset regulations it published last month.
“There’s been a number of other jurisdictions that I think have done a very good job of selling their wares and telling their stories and clearly we’ve all been slightly mesmerised by some of what’s been coming out of the US,” said Woolard, a former interim head of the FCA and now a partner at professional services firm EY. “But I mean the reality is actually the UK has been doing some really sensible, practical things.”
He said it was important to keep making progress and called on the UK government to launch the long-awaited sale of a digital gilt by the first quarter of next year and commit to a regular stream of further issues. He added that the Bank of England should “soon” announce that it would accept digital gilts as collateral.
His report says the UK faces heavy rivalry in digital markets, not only from the US, but also from the United Arab Emirates, Singapore, Hong Kong, Switzerland and the EU. It warns of the downsides if progress slows, saying: “A lack of pace would bring fundamental risks to the UK’s influential position as a global leading financial services hub.
“These risks include the movement of liquidity offshore, being a standards taker rather than standards setter, and the concentration of new market infrastructure in jurisdictions outside of the UK,” it says.
