Hedera Global Policy Director Isadora Arredondo Speaks

Digital assets remain a highly debated area in financial services, with policymakers, institutions, and regulators still determining how blockchain-based infrastructure should fit within mainstream finance. Isadora Arredondo, global policy director at Hedera, discusses the UK’s regulatory direction and the practical implications for advisers.

The UK’s Financial Conduct Authority has taken a mixed approach to digital assets, being cautious at times and flexible at others. It has been pioneering in terms of institutional adoption, with established players demonstrating an appetite for scalable market activity.

The FCA’s wholesale markets crypto-assets team has engaged with industry participants and introduced consultations and discussion papers on tokenized markets. This effort enjoys senior leadership support, as distributed ledger technology-based markets can improve retail access and trading activities.

A recent collaboration between Lloyds Banking Group, Aberdeen Investments, and Archax used tokenized money market funds and gilts as collateral in FX trades. This development demonstrates a focus on modernizing financial market infrastructure and processes, rather than the asset classes themselves.

Arredondo notes that the presence of well-regulated players dealing with scalable market activity shows there is an appetite for this technology. However, what holds back adoption is more a matter of interoperability and liquidity across the asset life cycle rather than reluctance to use the technology.

The discussion around stablecoins has focused on systemic risk and financial stability, with the Bank of England remaining cautious. They are looking at smaller stablecoin issuers, while the Bank of England is considering a potential regime for systemic retail payments.

Advisers are hearing more about tokenization, but many still struggle to identify the practical implications for clients. Arredondo believes the more immediate opportunities are around introducing a greater variety of asset classes into portfolios and improving collateral management efficiencies.

Money market funds have become a particularly appealing instrument in this context. Full life-cycle adoption would be a significant development for the investment and asset management industry as a whole, reducing costs and improving value for clients.

There are still obstacles on the journey towards this goal, including the need for greater seamlessness across the asset life cycle and improved interoperability and liquidity.

As the UK’s regulatory approach is debated, Arredondo thinks it’s a mixed picture, with areas where the UK is leading and areas where it’s taking a different approach. The UK is a front runner in terms of institutional backing of tokenization, but it has been more conservative in areas related to consumer protection.

The stablecoin approach stands out as relatively complex, creating a cliff edge between smaller and systemic stablecoin issuers. The regulatory gateway remains high, making it difficult for fintech companies to become authorized and scale in the UK.

Isadora Arredondo’s insights highlight the need for continued development and refinement of the regulatory framework surrounding digital assets.