Investment Updates: UK Fund Managers Push For Blockchain-Traded Funds

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7 July: Investment Association Says Digital Ledgers Would Benefit Consumers

The UK’s asset management industry is calling on the government to create a new class of fund that incorporates blockchain technology, the digital process that underpins much of the cryptocurrency industry.

The Investment Association (IA), the trade body representing the UK’s investment management firms running nearly £10 trillion worldwide, has urged the government and the City regulator, the Financial Conduct Authority (FCA), to work together “at pace” to approve blockchain-traded funds that would issue digital tokens to investors in place of traditional shares or fund units.

The IA says that the increasing adoption of so-called ‘tokenisation’ would ultimately reduce costs for consumers and improve efficiency in the delivery of funds, through quicker settlement and improved transparency of transactions.

It added that tokenisation may also broaden the assets held within a fund by increasing access to private markets and illiquid assets such as property, that cannot quickly or easily be converted into cash.

According to the IA, the landscape it envisages for funds of the future would offer consumers “more engagement and customisation, while maintaining important consumer protections”.

Greater variety

It added that this could include the provision of a greater variety of portfolios tailored to the specific needs of individual investors and a wider range of financial advice services to address the UK’s current advice gap.

Earlier this year, the Treasury, headed by Rishi Sunak MP, former Chancellor of the Exchequer, announced a series of measures designed to elevate the UK into a global hub for cryptoasset technology and investment.

The FCA issues regular warnings to consumers about the crypto industry, reminding them that cryptoassets are unregulated and high-risk.

The regulator’s current stance on crypto as an investment is that investors “are very unlikely to have any protection if things go wrong, so people should be prepared to lose all their money if they choose to invest in them”.

Chris Cummings, IA chief executive, said: “With the ever-quickening pace of technological change, the investment management industry, regulator and policymakers must work together to drive forward innovation without delay.

“Greater innovation will not only boost the overall competitiveness of the UK funds industry, but will improve the cost, efficiency and quality of the investment experience.”

5 July: Watchdog Unveils Recruits To Oversee Investment And Crypto Sectors

The UK’s financial watchdog has poached a director with specialist knowledge of economic crime and illicit finance from the National Crime Agency (NCA) for a new role overseeing the crypto-asset, e-money and payment markets.

The appointment is one of six new directorships revealed by the Financial Conduct Authority (FCA), as the regulator looks to beef up its top personnel covering traditional areas of investment, while burnishing its credentials amid calls for tougher oversight of the crypto sector.

Matthew Long will join the Financial Conduct Authority in October as director of payments and digital assets. Long is currently director of the National Economic Crime Command, part of the NCA.

He also led the UK Financial Intelligence Unit, which has national responsibility for receiving, analysing and disseminating financial intelligence through the Suspicious Activity Reports (SAR) regime.

SARs are pieces of information that alert law enforcers that client or customer activity is suspicious and might indicate money laundering or terrorist financing.

Joining Long in October will be Camille Blackburn in the new role of director of wholesale buy-side. 

Ms Blackburn will be responsible for policy development and supervision across asset management, alternative investments, custody banks and investment research.

She is currently global chief compliance officer at Legal & General Investment Management. Prior to that she was chief compliance officer at Aviva Investors and was also chair of the Investment Association’s Brexit committee.

Four other new directors have also been appointed in the FCA’s latest hiring round, including former City of London economic crime co-ordinator, Karen Baxter, who joins as director of strategy, policy, international and intelligence.

Three internal promotions – Roma Pearson, director of consumer finance; Anthony Monaghan, director of retail and regulatory investigations; and Simon Walls, director of wholesale, sell-side – complete the appointments.

29 June: Investment Trust Dividends Soar To £5.5 billion

Dividends paid out by investment trusts hit a record high of £5.5 billion in the year to March 2022, propelled by payouts from privately-owned companies not listed on stock markets.

An investment trust is a public limited company, traded on the stock market, whose aim is to make money by investing in other companies. The investment trust sector has become increasingly popular with retail investors in recent years.

According to fund administration group Link, two-thirds of investment trust dividends paid over the 12 months to March focused on so-called ‘alternatives’. These include investments in venture capital, renewable energy infrastructure and property.

Link says the figures equate to an overall increase in dividends of 15% compared with the previous year.

It adds, however, that shareholder payments from investment trusts investing in company stocks flatlined over the period, accounting for £1.85 billion of the total payout. These equity investment trusts traditionally play a key role in the London-listed investment trust sector.

While dividends from alternative trusts have increased nine-fold over the past decade, Link forecasts that shareholder payments from equity trusts will grow more slowly than the market average over the coming year.

Ian Stokes, Link’s managing director, corporate markets UK and Europe, said: “Ten years ago, alternatives were a much smaller segment of the investment trust market, but they have rapidly expanded as new investment opportunities have opened up in response to investor demand.”

Richard Stone, chief executive of the Association of Investment Companies, the trade body representing investment trusts, said: “This report demonstrates that investment companies offer an abundance of benefits to income investors and have continued to do so through challenging market conditions.”

28 June: Platforms Sweeten Deal With Interest Payments

Competition has intensified among online trading platforms as they battle to retain client funds now that the boom in ‘armchair’ share trading during the pandemic has tailed off. 

The rise in the popularity of commission-free trading platforms had already put pressure on the larger platforms to review their fee structures, with AJ Bell reducing their platform and foreign exchange fees from July.

Now interactive investor (ii) has announced that it will start paying interest on British pound and US dollar cash balances held in its Individual Savings Accounts (ISAs) and Self Invested Personal Pensions (SIPPs) accounts from 1 July. 

Historically, platforms have not paid interest on these balances, and investors may even have been charged for the privilege of holding cash in the past.

However, the stock market downturn has encouraged some investors to leave their ISA contributions uninvested as cash in their account. Others have sold their equity investments to hold the proceeds as cash in their ISAs and SIPPs, enabling them to keep the money within its tax-free wrapper.

The move by ii will see interest of 0.25% paid on the value of any balances over £10,000, with each account (eg ISA and SIPP) treated separately, rather than combined for the purpose of the interest calculation.

Richard Wilson, CEO at ii, commented: “Interest rates are still low, but following recent increases, ii will begin paying interest on accounts from 1 July.” 

Mr Wilson also pointed to the benefit for regular traders of overseas shares, who will now earn interest on US dollar balances held on their account.

This announcement brings ii in line with other major trading platforms as follows:

  • Hargreaves Lansdown pays interest of between 0.05% to 0.25% on cash held in ISAs, 0.05% to 0.20% on Fund and Share Accounts and 0.05% to 0.45% held in…

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