Policy Statement – Approach to Fund Tokenisation

The Commission supports innovation and recognises the role tokenisation could play in improving efficiency within capital markets. The Commission is aware of growing interest, locally and internationally, in the application of this technology within the funds sector and this is an area of focus for fund regulators globally.

The Commission’s overall position is to encourage technology which enhances services to investors and increases efficiency and effectiveness of operations in the Bailiwick. Such technology must clearly comply with the Bailiwick’s framework of law and rules designed to protect investors and counter financial crime but, if there are specific rules which those wishing to trial new technology feel stand in the way of their efforts, we are happy to discuss whether a waiver might be granted on a pilot basis or a rule redrafted if the movement of technology has made its original design obsolescent.

The current Bailiwick regulatory regime permits fund tokenisation, i.e. the register of holders of units in a Bailiwick registered or authorised collective investment scheme may be maintained by using distributed ledger technology and tokens issued as a digital representation of the ownership of such units. It should be noted that:

• the collective investment scheme would still be required to comply with the provisions of the Protection of Investors (Bailiwick of Guernsey) Law, 2020 and the applicable underlying fund rules.
• the licensed Designated Administrator of the collective investment scheme would also remain responsible for administering the scheme in line with applicable law, including the Proceeds of Crime regime. (In that respect a private, permissioned blockchain would be required to be used, under the control of the Designated Administrator.)
• a token issued specifically as described above would not constitute a virtual asset for the purposes of the Lending Credit and Finance Law (Bailiwick of Guernsey) Law, 2022.

The Commission is aware that more advanced features of fund tokenisation may be considered in the future (e.g. using public, permissionless blockchains), and such features may pose additional risks and may not be consistent with the Bailiwick’s current regulatory framework. The Commission will monitor developments and welcomes continued engagement with the funds sector to ensure that the Bailiwick’s regulatory framework remains fit for purpose, reflecting changing technologies and practices, while continuing to meet international regulatory standards.

The above statement relates only to tokenisation of collective investment schemes as described above. The Commission continues to believe that crypto and virtual asset issuances can represent a significant area of risk, particularly to retail investors. Please see the Commission’s previous statement on this activity: Innovations — Commission — GFSC.

This statement can also be found in the investment FAQs on our website.