The UK continues to assert its position as a global leader in investment management, with £14.3trn assets under management. Following the FCA’s letter to the Prime Minister in January 2025, further steps have been taken by the FCA to support tokenisation initiatives as part of its commitment to progressing its roadmap for digital assets within the asset management sector.

On 14 October 2025, the FCA published a consultation paper (CP25/28) setting out its proposals to facilitate the adoption of tokenisation by the asset management industry in the UK. The proposals apply to managers and depositories of authorised funds, with some proposals of potential interest to fund and asset managers more broadly, including managers of non-authorised funds.

1. Laying the foundations 

Tokenisation, which involves representing an asset, or ownership of an asset, using distributed ledger technology (DLT), is increasingly viewed as a way to, “open new routes to distribute funds, broaden access to private markets and infrastructure investment and reduce the costs of small transactions, while maintaining existing consumer protection”[1], particularly as younger generations invest differently. Tokenisation can also make fund management more efficient, giving firms operating 
or distributing the fund the same records of information.

The FCA cites a recent Calastone report which estimates that tokenisation could generate $135bn in savings across the UK, EU and US fund industries collectively. At present, the FCA’s proposals apply to authorised funds only, without addressing unbacked assets, such as cryptocurrencies.

The proposals presented in the consultation paper align with the FCA’s broader digital assets agenda, as set out in their Crypto Roadmap. The consultation specifically sets out guidance for:

• operating a tokenised fund under the Blueprint model within existing legal and regulatory frameworks;
• introducing a new streamlined ‘direct to fund’ (D2F) dealing model, as proposed by the Investment Association; and
• a roadmap for future regulatory evolution.

2. Accelerating tokenisation of authorised funds

The FCA is supporting the adoption of tokenised fund registers through the Blueprint model, which allows firms to use DLT to run a tokenised register of fund unitholders within existing legal and regulatory rules. Both private and public DLT networks can be used, provided firms have strong controls in place to meet regulatory requirements such as data privacy. The FCA already has authorised the first tokenised UK UCITS under the Blueprint model in January 2025.

The FCA’s rules are designed to be flexible and focus on outcomes, allowing the rules to apply to both traditional and blockchain-based systems.

A. Authority of manager

• Under the UK fund rules (Collective Investment Schemes (COLL) and Open-ended Investment Company (OEIC) Regulations), firms managing investor registers must be able to make updates independently; however, some DLT networks don’t naturally allow for this kind of control.
• The FCA’s proposed guidance confirms that DLT-based records can still meet these rules by using features like ‘minting’ or ‘burning’ tokens to fix mistakes or create new records to correct earlier ones. Firms can also update the register by controlling private keys, using special access rights (like master nodes), or through legal agreements with unitholders.

B. Smart contracts and eligibility verification

• Using DLT could improve how fund managers track ownership and allow the wider use of peer-to-peer transfers, but this may require firms to apply additional technology controls.
• These controls could include arrangements to transfer tokens only to manager-verified known eligible investor account numbers, often referred to as ‘whitelisting’, or an ‘allow list’. The FCA is also focussed on how smart contracts and DLT can be safely used, especially on public networks. Firms must take regard of privacy considerations, noting that records on DLT networks are permanent and immutable, reflecting a full history of transactions, yet emerging technologies like quantum computing could one day expose historical data. This reflects a very long-term risk management perspective – potentially decades into the future.

C. Managing risks

• When using DLT to manage fund registers, firms should consider backup systems in case of network outages and ensure records remain accessible and readable in the UK and allowing for the fund to be wound-up and investor assets and cash returned.
• The consultation clarifies that hybrid on- and off-chain systems are acceptable, where it cannot be achieved fully on-chain, as long as the records can be merged.
• The use of a public or consortium-based network for issuing and settlement could create conflicts of laws – careful consideration would need to be given to whether the fund has legal domicile and jurisdiction for service in the UK (including whether the fund complies with the COLL and OEIC Regulations)
• Firms may also need to consider whether registration under the UK Money Laundering Regulations is required, especially when using public networks or holding cryptoassets (even in small volumes to cover transaction charges, often referred to as ‘gas fees’). The FCA is continuing to work with the Treasury on this point.
• Transparency on DLT may expose investor activity, so firms should consider how this affects product design and liquidity controls.

3. The D2F model: a fundamental reshaping of UK fund dealing 

Under current UK practice, the authorised fund manager (AFM) usually acts as principal in unit transactions with investors, using a “box” of units to manage redemptions and subscriptions. Many AFMs operate a zero or flat box policy, but investors and the fund still have interim exposure to the AFM during the dealing process. The current dealing model also creates significant operational overheads for the AFM, including costs of complying with client money rules and balance sheet exposure due to acting as principal counterparty.

To simplify fund operations, the FCA is proposing a new optional D2F dealing model that allows unitholders to deal directly with the fund or its depositary, rather than through the AFM. Though this is technically permitted under the FCA existing rules, many of these are drafted on the basis of the AMF acting as a principal and therefore limits efficiencies. This model aims to simplify fund operations.

The D2F model will require a dedicated bank account - an ‘Issues and Cancellations Account’ (IAC) - for handling investor payments. The IAC would constitute scheme property of the relevant fund. Cash in the IAC would also be subject to existing fund investment and borrowing rules, including the 20% limit on deposits with a single body.

After reconciliation checks, any sums in the IAC that cannot be attributed should be promptly removed from the IAC and returned to the sender or moved to a client money account. The FCA proposes allowing firms to operate the IAC at an ‘umbrella’ fund level, subject to strict safeguards to ensure the assets and liabilities of each sub-fund remain segregated. This structure already works in Ireland and Luxembourg.

The FCA proposes amending existing rules and retaining existing definitions wherever possible to reflect the D2F model, including changes to rules on cash handling, late payments and reconciliations. For example, the proposals involve amendments to COLL to remove the requirement for AFMs to deal as principal and to govern the operation of the IAC. Prospectuses of a direct dealing fund must explain the risks of using an IAC where an investor or the fund becomes insolvent or cannot make payments. The guidance also clarifies that anti-money laundering (AML) responsibilities may also shift under a D2F model and firms should clearly define who has responsibility for AML structures.

4. Interim regulatory environment

The FCA invites views on an interim environment that could operate ahead of introducing the UK’s regime for qualifying stablecoins, such as sandboxes or rule modifications or waivers.

The FCA also confirmed its expectation that authorised funds can:

• hold cryptoassets that are specified investments (including digital gilt instruments issued under the Treasury’s DIGIT pilot); and
• use public DLT networks, provided firms meet regulatory obligations. Public networks can improve distribution, but firms must manage risks like smart contract errors, front-running and operational limits.

5. Supporting future tokenisation models

The FCA is exploring how DLT and tokenisation could support more personalised investment services, especially for younger investors who expect instant, direct access to their money.

The FCA outlines a three-stage roadmap for tokenisation:

1. Tokenised funds - using DLT to manage fund registers is being supported by the FCA through guidance on the Blueprint model.
2. Tokenised assets - allowing investors to hold individual tokenised assets directly in digital wallets. Asset managers could manage these through model portfolio smart contracts, offering improved customisability and reduced complexity.
3. Tokenised cash flows - breaking down assets into tokenised cash flows tailored to specific financial needs. Advisers could assign these tokens to meet lifestyle goals, enabling highly customised portfolio management.

The FCA is also considering how asset managers’ roles may change as tokenisation progresses. For example, in future models, managers could offer personalised investment services at scale and lower cost, without needing traditional fund structures. Tokenised flows could also lead to new marketplaces where consumers digitally express financial needs and asset managers compete to meet them. This could improve choice and competition but also introduce risks if firms take on excessive risk to win clients.

The FCA acknowledges that existing roles - like fund accounting and custody - may evolve or be replaced. For example, custodians may shift from maintaining central securities depositaries linkages to enabling blockchain interoperability. As such, the FCA plans to review its rules on individual portfolio management to ensure they are fit for the future for both firms and consumers,, and that the FCA has a proportionate regime to support tokenised portfolio management.

6. Next steps

The FCA is seeking feedback on Chapters 2-4 by 21 November 2025 and the consultation period for Chapter 5 ends on 12 December 2025. Following the consultation, a policy statement is expected in the first half of 2026.

The FCA’s consultation marks a significant step in supporting the adoption of tokenisation across the UK’s asset management sector. Firms looking to participate in this transformation should act now to contribute their views.