UK calls for consultation on a tokenised fund future

The UK Financial Conduct Authority (FCA) has released a huge consultation paper CP25/28 titled 'Progressing Fund Tokenisation' which outlines new rules for fund tokenisation and direct-to-fund dealing. The paper expands on the 2023 Blueprint published by the Investment Association's Technology Working Group, which introduced a phased roadmap for fund tokenisation.

The FCA has clearly put a huge amount of work into this document, which defines tokenisation as a method of representing an asset or ownership of an asset by recording it on distributed ledger technology (DLT). The FCA considers that as tokenisation becomes a driver of future financial services, it will need to provide clarity for the adoption of tokenised funds in fund management.

The proposals include:

• Guidance on operating tokenised fund registers under current FCA rules through the UK Blueprint model

  
  

• A streamlined, alternative dealing model for fund managers to process buying and selling of units in authorised funds, whether traditional or tokenised

  
  

• A roadmap to advance fund tokenisation and address key barriers like using public blockchains and settling transactions entirely on the blockchain

  
  

• A discussion on how tokenisation models could evolve and how regulation may need to change

Accelerating tokenisation of authorised funds

The Blueprint model, developed by the Technology Working Group of the Asset Management Taskforce, explains how firms can maintain a tokenised unitholder register using DLT while staying compliant with existing regulations. The FCA confirms that firms may use either private-permissioned or public blockchain networks if they implement appropriate controls to meet regulatory outcomes like data privacy. A key issue is, of course, whether the DLT is just using a very expensive database or the tokenised interests can actually be used for anything new - the dream of many is for DeFi interactions with funds, unlocking lending and trading 24/7 of a massive amount of financial instruments in potentially automated ways. That dream could well be a nightmare for regulators who are still understanding the technology and are focused on risk reduction.

The FCA's Collective Investment Schemes sourcebook (COLL) and the OEIC Regulations are described in the consultation as generally technology-neutral and outcomes-based, which risks trying to put the square peg of new innovation into a round hole and meaning meaning the regulations can be considered to support DLT as long as firms ensure unitholder records are accurate, current, and accessible to regulators, depositaries and investors.

However, the firm responsible for the register must be able to make updates unilaterally which likely requires a form of permissioning or allow lists in order to accommodate existing regulatory requirements which undermines the DeFi dream. A combination of on and off chain records may also be required which introduces substantial complexity. The register must be portable, legally domiciled in the UK, accessible in legible form and capable of supporting fund operations such as valuation and liquidity management. Firms may use smart contracts and token standards like ERC-3643 to verify investor eligibility and manage peer-to-peer transfers, provided they maintain accurate records.

Fund efficiency and direct dealing in authorised funds

In Chapter 3, the FCA introduces a new direct dealing model known as Direct to Fund (D2F). Under this model, the fund or its depositary would act as the principal in unit transactions with investors rather than the authorised fund manager (AFM).

This model could help AFMs transition to a tokenised environment by removing the need for back-to-back transactions with both investors and the fund. It offers flexibility for AFMs to choose the most efficient dealing model for each fund.

The proposals apply to all authorised funds, not just tokenised ones. Implementing these rules now allows firms to prepare for operational changes alongside the move to T+1 securities settlement by October 2027 and any future plans for tokenisation.             

Fund tokenisation roadmap

The FCA outlines in Chapter 4 the next steps for advancing fund tokenisation in the UK, referencing a March 2024 report from the Asset Management Taskforce’s Technology Working Group which identified two priority use cases. These include fully on-chain investment markets where tokenised funds invest in tokenised securities and the use of tokenised money.

The FCA contemplates authorised funds holding specified crypto assets including digital gilts issued under the Treasury’s DIGIT pilot. Public DLT networks may be used, and the FCA explores how funds could operate fully on-chain using programmable money or stablecoins for settlement. Interim environments such as sandboxes or waivers may support innovation before final rules are established. The chapter also proposes amendments to the COLL rules to allow authorised funds to hold ancillary digital assets for operational purposes.

Supporting future tokenisation models

The FCA proposes three phases of evolution, being tokenised funds, tokenised assets and tokenised cash flows. In the final phase, investors might hold tokens representing financial goals such as income for university fees to enable personalised investment strategies.

Asset managers’ roles will dramatically change if this approach is adopted as they will be managing portfolios at scale and validating tokens and regulatory changes will be needed in areas such as investor eligibility, eligible assets, investment and borrowing limits, oversight functions, disclosures, auditing, valuation, liquidity management and recognition of overseas funds.

What's next?

The UK is home to 2,600 firms managing £14 trillion in assets for both domestic and global clients and changes to this will always be a case of carefully considered slow steps. In its media release accompanying CP25/28, the FCA highlights tokenisation as a way to encourage innovation, strengthen global competitiveness, expand consumer choice, introduce new fund distribution models and open access to private markets and infrastructure investment. With CP25/28 and any future publications shaped by industry feedback, the FCA is laying the groundwork to position the UK as a global leader in digital finance by providing asset managers with the clarity and confidence they need to embrace tokenisation.

Feedback can be submitted to the FCA during November and December 2025. A policy statement with the final rules is expected in the first half of 2026.

First published at www.bitsofblocks.io and reproduced with permission