The UK risks seeing its booming £290bn financial services industry governed from overseas after falling behind international rivals in digital asset innovation, a new report has warned.

Banking industry body UK Finance has issued a rallying call to policymakers to move at pace in developing the infrastructure to power tokenisation, or else watch the country lose its competitive edge as a leading financial centre.

In a joint report with management consultancy Oliver Wyman, the group warns that "the challenge is now execution… the ecosystem will form regardless".

"If the ecosystem anchors in New York, Frankfurt or Singapore, the UK's £290bn industry will operate on infrastructure designed, governed and priced elsewhere," the report states.

The warning reflects how other jurisdictions have already moved to operational frameworks: the European Union's DLT Pilot Regime came into force in March 2023 to let financial institutions trade and settle tokenised securities under a bespoke sandbox, while Singapore's central bank has run Project Guardian since 2022, a series of industry pilots testing tokenised assets with major global banks and asset managers.

What tokenisation means

Tokenisation converts traditional financial assets – such as government bonds and cash – into digital 'tokens' that can be traded and tracked in real-time.

While regular digital money represents cash moving electronically through standard bank accounts, tokenisation packages the financial asset itself into smart code. This code contains the ownership rules, value, and rights attached to the asset, allowing it to execute transfers automatically.

"It is undeniable [that] the UK has been slower to act than some of our competitors. Other jurisdictions have had a head start, and we risk falling further behind," UK Finance warned.

Top banks including Lloyds and Barclays joined calls earlier this year for the government to accelerate the digitalisation of UK markets. A paper backed by a 54-strong taskforce of financial giants said the tokenisation of capital markets could add hundreds of billions of pounds in economic value to the UK over the next decade.

UK risks finding itself on the outside of the finance ecosystem

UK Finance's new report urges UK policymakers to publish a single national plan allowing tokenised assets and digital money to be traded on the same connected systems, in a bid to make the UK a setter of global standards for digital finance rather than taking orders from foreign hubs.

Writing in City AM, the chairman of UK Finance, Bob Wigley, said: "There is a risk that the market forms elsewhere and we find ourselves adapting to standards and approaches set elsewhere rather than shaping them."

The government is also being urged to hand the Wholesale Digital Markets Champion, Chris Woolard, a beefed-up position with formal authority and milestone mandates beyond basic coordination and advisory capacity.

Wigley said giving the role "real teeth in terms of decision-making powers" would help drive action across the public and private sectors.

He added: "Tokenisation will reshape market infrastructure – the question is whether we want to shape it or adapt to decisions made elsewhere."

Last month, ministers handed the Bank of England a new secondary objective on payments innovation, which will require the central bank to report annually on its developments in digital finance.

Industry leaders told City AM the objective followed frustration from the Treasury that plans for digital finance innovation were progressing "too slowly". What happens next will be visible in the national tokenisation plan UK Finance is calling for, the scope of Woolard's remit, and the Bank of England's annual reports on its new payments innovation objective.