Briefing
The Financial Conduct Authority (FCA) has initiated a consultation to permit UK asset managers to issue tokenized fund units on public distributed ledger technology (DLT) networks, fundamentally altering the operational architecture for institutional digital assets. This move supersedes the prior industry-wide reliance on private blockchains and requires firms to address new ownership and technology risks within their existing compliance frameworks. The proposal signals a major regulatory pivot toward facilitating institutional tokenization, with the consultation period closing on November 21, 2025.
Context
Prior to this action, the UK’s approach to fund tokenization was highly restrictive, largely confining DLT use to private, permissioned networks to maintain control over the unitholder register and meet existing legal requirements. This created a compliance challenge by limiting the potential for full, end-to-end efficiency, preventing firms from leveraging the liquidity and transparency benefits of public blockchain infrastructure for the issuance and settlement of fund units. The existing legal ambiguity centered on how statutory requirements for investor registers and custody could be met using decentralized, public systems.
Analysis
This proposal necessitates a systemic re-architecture of compliance and operational systems for asset managers. Firms must develop robust controls to manage the new technology and ownership risks inherent in public DLT, including cybersecurity, forking, and the legal finality of on-chain transfers. The core system alteration involves reconciling on-chain records with off-chain legal registers to satisfy the requirement that the register be reproducible and accessible in the UK.
Furthermore, the consultation on using stablecoins for atomic settlement introduces a new regulatory and liquidity risk layer, requiring the integration of stablecoin-specific compliance modules into existing treasury and risk management frameworks. This change is critical because it provides a clear regulatory path for the mass-market adoption of tokenized funds, unlocking significant operational efficiency gains.
Parameters
- Consultation Deadline → November 21, 2025 (Date for industry feedback submission to the FCA).
- Targeted Technology → Public Blockchains (The new networks permitted for fund unit issuance, e.g. Ethereum).
- Risk Weight Focus → Ownership and Technology Risks (New risks identified by the FCA that intermediaries must manage).
Outlook
The final rules, expected after the November 21, 2025 deadline, will establish a global precedent for integrating public DLT into regulated asset management, likely accelerating the tokenization of real-world assets across other jurisdictions. The next phase involves the FCA publishing non-Handbook guidance on DLT use and a separate review on whether regulated funds can hold direct cryptocurrency exposures. This action strategically positions the UK as a competitive hub for financial innovation, though its success depends on the industry’s ability to operationalize the complex on-chain/off-chain compliance bridging required by the new framework.
Verdict
The FCA’s proposal to permit public blockchain use for fund tokenization is a definitive regulatory signal that validates DLT as a foundational layer for institutional finance, moving the UK market from experimental sandboxes to scalable, production-grade digital asset infrastructure.
