Briefing
The Financial Conduct Authority (FCA) has issued a consultation paper detailing proposed rules and guidance to support the tokenisation of investment funds, establishing a formal regulatory pathway for the use of Distributed Ledger Technology (DLT) within the UK’s asset management sector. This action directly addresses the legal and operational uncertainty surrounding the representation of fund units on a blockchain, creating an optional ‘Blueprint’ model for firms seeking to leverage DLT for greater efficiency and competition. The most immediate compliance requirement is the deadline for industry feedback on the proposals, which closes on November 21, 2025.
Context
Prior to this consultation, the use of DLT for fund management operated within a legal gray zone, forcing firms to rely on bespoke legal opinions to determine how tokenized units aligned with existing Undertakings for Collective Investment in Transferable Securities (UCITS) and Alternative Investment Fund Manager (AIFM) regulations. This lack of explicit guidance stifled institutional innovation, as major fund managers faced unacceptable compliance risk when attempting to move core functions like fund unit registration and transfer onto a blockchain. The prevailing challenge was the absence of a standardized, regulator-approved framework to govern the issuance and lifecycle of a tokenized fund.
Analysis
This regulatory action fundamentally alters the product structuring and operational compliance frameworks for UK asset managers. Firms must now integrate the proposed ‘Blueprint’ guidance into their technology roadmaps, assessing the cost-benefit of migrating existing fund registers and dealing systems to a DLT-based architecture. The FCA’s explicit guidance on tokenized fund registers reduces legal risk, which in turn enables fund managers to launch new, more efficient products.
This development compels custodians and administrators to rapidly develop compliant DLT infrastructure to support the new market standard. This update is critical because it moves tokenisation from a theoretical proof-of-concept to a regulator-sanctioned, scalable business model.
Parameters
- Affected Industry Value → £14 Trillion (The total value of assets managed by the UK’s asset management sector).
- Consultation Deadline → November 21, 2025 (Final date for feedback on the core regulatory proposals).
- Regulatory Outcome Date → First Half 2026 (Target timeframe for the FCA to publish its final Policy Statement).
- Targeted Firms → UCITS and AIFM Managers (The primary fund types covered by the new guidance).
Outlook
The publication of the Policy Statement in the first half of 2026 represents the next critical phase, as it will finalize the technical standards for operationalizing the new tokenized fund model. This proactive approach by the FCA sets a powerful precedent, positioning the UK as a first-mover in establishing a clear, institutional-grade regulatory environment for the tokenisation of traditional financial assets. Second-order effects will likely include a surge in FinTech partnerships and a global competitive dynamic, pressuring other jurisdictions to accelerate their own DLT-in-finance frameworks to avoid capital flight and maintain competitiveness.
Verdict
The FCA’s tokenisation framework is a watershed moment, providing the definitive regulatory clarity necessary to bridge traditional asset management with Distributed Ledger Technology.
