FCA sets framework for tokenised authorised funds

What does this mean?

Accelerating tokenisation of authorised funds

The FCA confirms that authorised funds can use DLT to maintain unitholder registers under the existing “Blueprint” model. On-chain transaction records can serve as the primary books and records for unit deals, removing the need for a full off-chain mirror where firms have appropriate resilience arrangements. The FCA also clarifies that units in the same class may be issued on multiple blockchains, provided the underlying rights, charges and expenses remain the same.

The guidance remains outcomes-based. The Authorised Fund Managers (AFMs) must retain authority over the register, including the ability to correct errors, assist investors and process court decisions. Firms may use smart contracts, token standards, freeze and unfreeze functionality, forced transfers, minting and burning to support register operations, KYC controls and unitholder processes.

Public DLT networks are permitted where firms have appropriate controls for operational resilience, financial crime and data privacy. The FCA does not view use of public DLT networks in fund management as outsourcing. It also flags issues linked to peer-to-peer trading of fund units, including pricing information, settlement finality, register treatment and disclosures on costs such as gas fees.

Fund efficiency and direct dealing in authorised funds

The FCA introduces an optional direct dealing model, “direct to fund”, for authorised funds. This allows investor deals to be processed through a single-stage issue or cancellation of units directly with the fund, rather than through the AFM’s manager’s box. The model is intended to support operational efficiency, alignment with other jurisdictions, T+1 related changes and atomic settlement for newly issued tokenised units.

Following feedback, the FCA has amended its rules to allow AFMs to deal as principal in funds using direct to fund (D2F) and to use different dealing models within a fund or sub-fund. Firms converting or launching funds using direct dealing must ensure scheme documents specify who is responsible for AML checks.

Cash held in an Issues and Cancellations Account is scheme property. The FCA has removed its proposal to require unattributable payments to be moved to an AFM client money account. Instead, managers must reconcile Issues and Cancellations Account (IACs) daily, or as often as the fund deals, allocate omnibus account money promptly and no later than five business days after receipt, and return money still unattributed after five business days. Protected cell legislation remains a significant constraint. The FCA says many umbrella funds are likely to need individual sub-fund IACs unless an omnibus model can be supported by legal analysis, and it is working with HMT on whether legislative change is needed.

Supporting digital cash and tokenised assets

The FCA signals support for authorised funds using stablecoins and other digital cash instruments for operational purposes, including unit settlement, register maintenance, payments from scheme property and settlement of eligible underlying investments. Firms may use waivers or modifications as an interim route, and the FCA does not currently plan to restrict stablecoin use to UK-issued products.

The FCA also confirms that its rules do not prevent authorised funds from investing in tokenised forms of eligible assets, including instruments such as DIGIT. Forthcoming cryptoasset legislation is expected to reduce duplication by removing separate MLR registration for certain authorised firms, with notification to the FCA instead. The Article 72AA exemption is also extended to new cryptoasset activities.

The FCA will monitor uptake through engagement rather than new reporting, and will continue work on tokenised MMFs, digital settlement assets, composable finance and wholesale DLT markets.

What do firms need to do?

Tokenised funds are now live in the UK regulatory framework. The FCA’s rules and guidance shift the focus to what firms can do today. Tokenisation now needs to demonstrate where it delivers tangible improvements in how funds operate, not just where it can be applied.

Firms need to work through how these models function in practice. Direct dealing and on-chain registers change how cash moves, how responsibilities are allocated and how oversight is exercised across managers, depositaries and administrators. Existing control frameworks will not map neatly. AML responsibilities, custody of digital assets and operational resilience will all need to be reassessed.

There are also structural constraints to address early. Protected cell legislation, account design and allocation of responsibilities will shape what is operationally viable, particularly for firms looking to scale. These are not purely technical questions and will require coordinated legal and regulatory analysis.

The FCA is allowing flexibility through optional models and use of waivers or modifications, including for digital cash and settlement. Firms can begin testing within the current framework. Those that move early will be better positioned as tokenised funds develop further.

Next steps

The rules and guidance take effect immediately, with the FCA monitoring uptake through market activity rather than formal reporting.