Banks, governments and central banks are investing heavily in tokenization — the idea of representing money, shares and bonds as digital tokens recorded on entirely new technological infrastructure. Yet new research from Loughborough University suggests that UK financial markets could become faster, simpler and cheaper without building complex new digital systems at all.
Professor Alistair Milne of Loughborough Business School argues in a recent paper, published by SUERF (the European Money and Finance Forum), that a simpler approach — which he calls direct holding and control — could deliver many of the benefits promised by tokenization while avoiding the cost, complexity and coordination problems involved in rebuilding financial market infrastructure from scratch.
This article explains Prof Milne’s argument, examines why the current structure of financial markets creates friction in the first place, and considers what his proposed tokenization alternative could mean for financial professionals, policymakers and students of modern finance.
If you are weighing up a career in financial technology or the financial markets, explore the postgraduate programmes at Loughborough University to see how academic research of this kind feeds directly into professional practice.
Why UK Financial Markets Face Growing Pressure to Modernise
The UK’s standing as a leading global financial centre depends heavily on the efficiency of its market infrastructure. Every trade in shares or bonds triggers a chain of post-trade activity: instructions are passed between brokers, custodians, clearing houses and central securities depositories, each of which maintains its own records and must confirm that they match. This machinery works, but it is slow by modern standards and expensive to operate.
Regulators and industry bodies have responded. The United States has already moved to next-day settlement for many securities, and similar reforms are under active discussion in the UK. Each shortening of the settlement cycle exposes the same underlying issue: too many organisations sit between an investor and the assets they own, and too much effort is spent reconciling records rather than moving value.
At the same time, new forms of digital technology in finance — distributed ledgers, programmable money, smart contracts — have promised to automate much of this work. Tokenization has become the umbrella term for these ambitions. The question raised by Loughborough’s research is whether genuinely new technology is the only route to the outcomes everyone wants.
What Is Tokenization and Why Has It Attracted Banks and Governments?
Tokenization involves creating a new digital version of an asset — money, shares or bonds — and recording it on a new type of digital system, often one built on distributed ledger technology. Supporters believe this could make moving money and investments around the financial system quicker and more automatic, with fewer manual interventions and near-instant settlement.
The idea has attracted serious institutional interest. Commercial banks are running pilots, governments have explored issuing digital versions of their debt, and regulators have created sandboxes to test tokenized instruments under supervision. The appeal is understandable: financial market plumbing is ageing, and a clean-slate redesign seems attractive.
Prof Alistair Milne’s objection is practical rather than ideological. Most money and investments are already held digitally. Creating yet another digital representation of them, on yet another system, may not be necessary — and could add complexity rather than remove it.
The Hidden Layers That Slow Finance Down
The starting point for the argument is an honest description of how the current system works. As Prof Milne observes, the financial system has developed many different layers over decades. When a large investor buys an investment, the money and the investment itself may be held by different organisations. Several companies and computer systems can therefore be involved in completing a single transaction — passing instructions between each other and checking that their records agree.
Consider a pension fund purchasing shares. The instruction typically travels from the fund manager to a custodian bank, then to a broker, then through clearing and settlement systems, before ownership is finally updated on the official register. Each participant keeps its own books. Each hand-off creates a delay, a fee, a potential point of failure and a reconciliation exercise.
The crucial insight is that this friction is structural, not primarily technological. Upgrading the software inside each layer — or adding a new layer of tokens on top of the existing ones — leaves the underlying architecture untouched. The layers remain, and so do the costs.
Direct Holding and Control: A Practical Tokenization Alternative
Prof Milne’s paper, Direct holding and control of financial assets: An alternative to tokenization, proposes cutting out unnecessary steps rather than rebuilding the system. Under this model, investors would hold their money and investments directly on the official systems that record who owns what, and would securely authorise transactions themselves — rather than relying on a chain of banks and other intermediaries to act on their behalf.
How Direct Holding Differs from Tokenization
The distinction matters. Tokenization creates a parallel digital representation of an asset on new infrastructure. Direct holding works with the existing official record and changes who can access and control it. Security comes from strong digital authentication and authorisation by the asset holder, rather than from an entirely new ledger.
This is less radical than it may sound. The UK already operates dematerialised securities: share ownership is recorded electronically, and paper share certificates have largely disappeared. Extending direct access and control builds on infrastructure that already functions, rather than duplicating it.
The Benefits, Without Rebuilding the Financial System
By removing intermediate layers and giving investors direct, secure control, this tokenization alternative could deliver many of the improvements that tokenization promises:
- Faster transactions, because fewer parties need to pass instructions back and forth.
- Fewer administrative processes, since fewer records need to be created and reconciled.
- More efficient movement of money and investments across the financial system.
- Lower operational risk, with fewer points where records can disagree.
- Reduced cost, because the system is simplified rather than duplicated.
The Adoption Problem: When New Digital Technology in Finance Adds Complexity
Perhaps the sharpest warning in the paper concerns adoption. New financial systems only become useful if enough banks and other organisations agree to use them. If only some participants adopt tokenization, the result could be a financial system that is more complicated than before — with yet another system that needs to communicate with all the others.
This is a classic network-effect problem, and the history of financial technology offers plenty of cautionary examples. Platforms launched with enthusiasm frequently stall because critical mass is never reached. Every institution that stays on legacy systems forces the construction of costly bridges between old and new. For UK financial markets, the realistic risk is years of dual running: two records for every asset, double the reconciliation work, and none of the promised savings until — or unless — everyone moves together.
A reform based on direct holding and control faces a much lower coordination hurdle. It improves the existing system incrementally, so partial adoption is still an improvement rather than a complication.
What This Means for Financial Professionals and Policymakers
For professionals working in banking, asset servicing or fintech, the research is a prompt to evaluate modernisation proposals on outcomes rather than technology. Four questions cut to the heart of any pitch:
- Does the proposal remove layers from the system, or add one more?
- What happens if adoption is only partial?
- Does it build on existing official records, or duplicate them?
- Who bears the cost and risk of the transition?
For policymakers at the Bank of England, the Financial Conduct Authority and HM Treasury, the argument suggests that encouraging wider access to — and control over — existing official infrastructure could capture much of the value of tokenization at far lower risk. Have views on how digital technology in finance should evolve? Share your experiences and questions in the comments below, or explore our related articles on banking innovation and financial market reform for further reading.
Study Finance and Financial Technology at Loughborough University
The paper is also a window into why Loughborough University is a strong choice for anyone serious about a career in modern finance. Prof Alistair Milne previously worked at the Bank of England and HM Treasury, served on the Bank of England’s CBDC Academic Advisory Group, and works with central banks and financial regulators around the world. Students at Loughborough Business School learn from academics whose research directly informs policy debates on digital money, payments and the future of banking.
Through the Loughborough University London campus, based on the Queen Elizabeth Olympic Park, postgraduate and executive-level students study alongside influential thought leaders, pioneering researchers and creative innovators — an environment where questions about the future of financial market infrastructure are examined from every angle.
Considering postgraduate study in finance, economics or financial technology? Order a prospectus or browse Loughborough University’s postgraduate programmes to find the route that fits your goals.
Modernisation Without Overcomplication: The Road Ahead for UK Financial Markets
The debate between tokenization advocates and proponents of simpler reform is far from settled. Tokenized assets will likely find valuable niches, particularly in cross-border payments, fund management and specialised asset classes. But the core insight from Prof Alistair Milne’s research stands regardless of how that debate unfolds: much of what new digital technology in finance promises can be achieved by simplifying market structure — enabling direct holding, restoring direct control to investors, and stripping out intermediaries whose main contribution is reconciliation.
For a country determined to keep its financial markets fast, cheap and resilient, the most effective upgrade may not be a new system at all, but a better use of the systems already in place. If you want to be part of shaping that future — in research, regulation or the markets themselves — submit your application to Loughborough University today, or schedule a conversation with the admissions team to find out more.
