FCA Clarifies Rules for Fund Tokenisation and Direct Dealing

What the FCA guidance actually permits

The policy statement, published as PS26/7, confirms that fund managers may use distributed ledger technology (DLT) to tokenise fund units and shares without requiring a new regulatory regime. According to the FCA's press release, the guidance explains how tokenisation, defined as representing an asset or ownership of an asset using DLT, can operate within the regulator's existing rulebook.

Critically, the framework addresses two areas that had created hesitation among operators. First, it provides confidence around the use of public blockchain models where appropriate controls are in place. Second, it clarifies the permissible use of digital cash tools for operational needs within fund structures. Both points were highlighted by John Allan, director of innovation and operations and director of Engine at the Investment Association, who described the guidance as providing "confidence around public chain models where the right controls are in place, and the use of digital cash tools for operational needs," according to the FCA's announcement.

The accompanying consultation paper, CP25/28, sets out how fund tokenisation could develop over time. The FCA has framed this as part of its broader digital assets roadmap, which was committed to in a letter to the Prime Minister earlier in 2025.

Tokenisation adoption in the UK remains nascent. Only a handful of live tokenised fund products exist domestically. The guidance is designed to reduce the regulatory ambiguity that has slowed experimentation.

The Direct to Fund model and operational implications

Alongside the tokenisation guidance, the FCA has introduced rules enabling an optional Direct to Fund (D2F) dealing arrangement. Under this model, investors can deal directly with the fund itself, bypassing some of the intermediary layers that characterise traditional fund distribution.

The D2F model applies to both traditional and tokenised funds, according to the FCA. For fund operators, the practical significance lies in settlement and distribution architecture. A D2F structure could reduce the number of parties involved in processing a transaction, potentially lowering costs and compressing settlement times.

For platform operators and transfer agents, D2F raises questions about how existing infrastructure will need to adapt. Firms that currently sit in the dealing chain may need to reconsider their role if a meaningful share of funds adopt the model. The FCA has made D2F optional, signalling that it expects a period of parallel operation rather than an abrupt shift.

"This guidance and the increased optionality provided by D2F gives firms a stronger foundation to align innovation ambitions with long term operating choices," John Allan of the Investment Association said, according to the FCA's announcement.

Simon Walls, executive director of markets at the FCA, noted that "adoption will be driven by firms and investors" and that the regulator had focused on delivering "a clear, practical framework that provides confidence in how fund tokenisation can operate within our rules, both now and into the future," according to the same announcement.

How the UK framework compares with rival jurisdictions

The timing of the guidance reflects competitive pressure. Several jurisdictions have moved ahead with frameworks that offer regulatory clarity on tokenised funds and digital market infrastructure.

Luxembourg has amended its blockchain laws to accommodate tokenised securities, and the Grand Duchy remains the dominant European fund domicile. Singapore's Monetary Authority has advanced Project Guardian, a collaborative initiative testing asset tokenisation across bonds, funds, and foreign exchange. The European Union has implemented the DLT Pilot Regime alongside the Markets in Crypto-Assets Regulation (MiCA), providing a cross-border framework for digital asset issuance and trading.

The UK's approach differs in one notable respect: rather than creating bespoke legislation, the FCA has opted to clarify how existing rules accommodate DLT. This avoids the delays associated with primary legislation but may limit the scope of what is permissible compared with jurisdictions that have enacted purpose-built regimes.

The FCA has signalled further work on wholesale digital market infrastructure, which could address some of the structural gaps. The regulator confirmed it will engage with industry on the use of DLT in UK wholesale markets, according to the policy statement. The pace of that engagement will determine whether the UK can close the gap with Luxembourg and Singapore on fund domiciliation decisions.

What operators should consider now

The guidance creates a clearer baseline for firms evaluating tokenisation projects. Several practical considerations follow.

Technology selection is now less constrained. The FCA's acceptance of public blockchains with appropriate controls means operators are not limited to private or permissioned ledgers. Firms will need to demonstrate that governance, security, and anti-money laundering controls meet existing regulatory standards, but the technology choice itself is no longer a blocking factor.

Settlement and cash management arrangements need review. The guidance on digital cash tools opens a path for on-chain settlement of subscriptions and redemptions, but firms will need to assess which tools qualify and how they integrate with existing treasury operations.

Distribution architecture warrants reassessment in light of D2F. Fund managers considering direct dealing will need to evaluate the operational cost of building or procuring D2F-capable infrastructure against the potential savings from disintermediation.

Finally, the FCA's roadmap approach means the rules will evolve. The consultation paper, CP25/28, invites industry feedback on the next phase. Firms that engage with the consultation process will have greater visibility on the direction of travel, which matters for multi-year technology investment decisions.

The FCA's output represents the first concrete deliverable against its 2025 digital assets commitment. For UK asset management operators, the question has shifted from whether tokenisation is permitted to how quickly the supporting infrastructure and market conventions will mature.