FCA opens door to tokenised funds

What does this mean?

Accelerating tokenisation of authorised funds

The FCA proposes new guidance clarifying how authorised funds can use DLT to maintain a unitholder register under the existing “Blueprint” model. Fund managers or their agents would be permitted to mint, burn or amend token records provided that regulatory obligations on accuracy, reconciliation and record-keeping are met. DLT-based registers may be public or private networks if firms have adequate controls for security, privacy and governance; firms must also maintain contingency arrangements, including off-chain backups, to ensure register continuity and operability in the event of system failures or winding up.

The proposals identify how on-chain and off-chain components can jointly satisfy requirements that records be legible and accessible in the UK. Firms must assess legal risks where register functions are hosted or validated overseas and ensure that fund domicile and operational control remain within UK jurisdiction. Where minimal cryptoassets are held for operational needs such as gas fees, firms must consider registration or reporting obligations under the Money Laundering Regulations.

The FCA notes that using public DLT networks could expose dealing information, and expects firms to manage any resulting confidentiality or information-asymmetry risks.

Fund efficiency and direct dealing in authorised funds

The FCA proposes to allow an optional “direct dealing” or “Direct2Fund” model in which the fund, rather than the authorised fund manager (AFM), issues and redeems units directly with investors. This would remove the AFM’s obligation to deal as principal and eliminate the need for a manager’s box. Under this approach, cash subscriptions and redemptions would flow directly between the investor and the fund through a dedicated Issues and Cancellations Account (IAC). The IAC would be scheme property held in a UK credit institution and protected by segregated-liability rules. Umbrella funds could use a single or multiple IACs provided that attribution and reconciliation processes prevent cross-contamination.

The current AFM-as-principal model would remain available, allowing firms to continue using a manager’s box if they prefer. Under the new approach, all money held in the IAC, including amounts not yet allocated to a sub-fund, would form part of the scheme property. This cash would count towards the fund’s exposure to the relevant credit institution for the purposes of spread and concentration limits. The FCA proposes to delete existing guidance which currently allows uninvested cash to be excluded from these limits, meaning all bank exposures would now be captured. AFMs and depositaries would need to agree processes for identifying and returning any unattributed or residual balances promptly, with the option to pay immaterial orphan sums to charity where both parties agree and the fund’s prospectus sets out the approach.

The FCA also proposes amendments to the COLL sourcebook to align with direct dealing. These changes relate to suspension and redemption rules for LTAFs, clarify who is responsible for anti-money-laundering checks, and confirm that cash received for units is normally scheme property. AFMs would need to cover late-payment interest rather than cancel transactions, and LTAFs could use internal valuations for liquid assets even when mainly investing in other funds. Prospectuses would need to explain IAC-related risks, default exposure and FSCS coverage for pending deals.

Fund tokenisation roadmap

The roadmap sets out how tokenisation could progress from the Blueprint model towards fully on-chain fund operation and the use of tokenised MMFs as collateral. The FCA seeks views on enabling authorised funds to hold digital settlement assets, including tokenised money or stablecoins, where necessary for on-chain transactions. It invites feedback on whether modifications to COLL eligibility rules are required to permit such holdings.

The FCA also proposes that authorised funds should be able to invest in tokenised securities that represent conventional instruments, ensuring regulatory consistency with assets admitted under the Digital Securities Sandbox. Firms may use sandbox or transitional arrangements before permanent rules are finalised.

The FCA acknowledges feedback supporting the use of tokenised MMF units as collateral and seeks further evidence on how tokenisation could improve settlement efficiency without increasing liquidity risk. It reiterates that tokenised instruments are treated equivalently to traditional ones under UK EMIR but emphasises the need for legal clarity, interoperability standards and sound risk management, particularly where public networks are used.

The consultation does not cover whether authorised funds can hold cryptoassets as investments. The FCA plans a broader review of the eligible assets regime and may consider this question as part of that work. It also expects that authorised funds will continue to be denominated in fiat currency.

Supporting future tokenisation models

The FCA discusses longer-term development of tokenised investment structures, moving beyond fund registers towards more composable and individualised models. It outlines a progression from tokenised funds to tokenised assets and, eventually, tokenised cash flows in which income streams such as dividends or interest could be allocated directly and automatically to investors.

The FCA requests views on how existing rules might accommodate these models, including the extent to which frameworks such as the Consumer Duty and fund-governance requirements remain suitable. It also asks how innovation, investor demand and technology could shape future regulation and what further regulatory support might be needed to facilitate advanced tokenisation while maintaining investor protection.

What do firms need to do?

The FCA’s proposals give the market clearer direction and begin to lay the groundwork for what comes next. Investor expectations are changing, with growing demand for faster, more transparent and more flexible investment options, and tokenisation aligns well with these shifts. Asset managers can start to consider how a more digital model could reduce friction across trading, settlement and fund administration.

Firms should use this period to help shape how the new model will work in practice. Managers, depositaries and administrators can work together to test how responsibilities, cash flows and oversight will operate under a direct dealing approach. Legal, compliance and operations teams should review where existing controls may need to adapt, from anti-money-laundering checks to digital asset custody and operational resilience.

The FCA indicates that firms can begin exploring tokenised models within existing rules or through the Digital Securities Sandbox. The framework is taking shape, and those that engage early through testing and collaboration will be better prepared as tokenised funds move into the mainstream.

Next steps

The consultation closes on 21 November 2025 for the main proposals and 12 December 2025 for future models. The FCA plans to publish a Policy Statement in H1 2026.