UK finance industry risks overseas governance due to digital asset lag

Key facts

• The UK's financial services industry faces a risk of being governed overseas due to lagging digital asset innovation.
• A report by UK Finance and Oliver Wyman warns that the UK could lose its competitive edge if tokenisation ecosystems form elsewhere.
• Tokenisation involves converting traditional financial assets into digital tokens for real-time trading and tracking.
• The report calls for a single national plan for tokenised assets and digital money to establish global standards.
• Industry leaders advocate for enhanced authority for the Wholesale Digital Markets Champion role.

The UK's prominent financial services sector is at risk of losing its global standing and being governed by overseas infrastructure due to a perceived lag in digital asset innovation, particularly in tokenisation. A report by UK Finance and management consultancy Oliver Wyman warns that if key ecosystems for tokenised assets and digital money anchor in financial hubs like New York, Frankfurt, or Singapore, the UK's £290bn industry could be forced to operate on foreign-designed, governed, and priced systems.

Tokenisation, which converts traditional assets like bonds and cash into digital tokens for real-time trading, is seen as a critical area where other jurisdictions have gained a head start. UK Finance has issued a strong call to policymakers to develop the necessary infrastructure and publish a cohesive national plan to ensure the UK sets global standards rather than merely adapting to them.

Industry leaders, including major banks like Lloyds and Barclays, have previously supported efforts to digitalize UK markets, estimating that tokenisation could add hundreds of billions of pounds to the UK economy over the next decade. The report emphasizes that the 'challenge is now execution' and that the ecosystem will form regardless of the UK's actions. To drive progress, there are calls to grant the Wholesale Digital Markets Champion, Chris Woolard, more formal authority and decision-making powers.

Frustration over the slow pace of digital finance innovation has led to the Bank of England being handed a new secondary objective requiring annual reporting on its developments in digital finance, a move reportedly prompted by the Treasury's concerns.