Progressing fund tokenisation: Inside the FCA’s new consultation on digital funds
TL;DR
The Financial Conduct Authority’s (FCA) Consultation Paper CP25/28 represents a significant step forward for the UK fund sector. It provides guidance on using distributed ledger technology (DLT) for fund registers, proposes an optional Direct-to-Fund (D2F) dealing approach, and explores advancements such as tokenised money market funds (tMMFs) for collateral and stablecoin settlements. These developments could streamline operations, lower costs, and strengthen the UK's position in digital finance.
Why this matters now
The FCA’s consultation on fund tokenisation comes at a time when the UK financial services industry is adapting to rapid technological change and shifting investor needs. Drawing from the Asset Management Taskforce’s Blueprint and the government’s strategy for digital wholesale markets, CP25/28 shifts tokenisation from experimental trials to practical regulatory support. By permitting authorised funds to leverage DLT, the FCA seeks to enhance fund operations—making them quicker, clearer, and more aligned with international standards—while upholding protections for investors.
For asset managers, this is relevant as it opens doors to cost reductions and new efficiencies, potentially saving billions in administrative expenses across the industry, as estimated in Calastone’s white paper on tokenisation.
This consultation signals a move toward a more innovative, competitive sector where managers can better meet the demands of younger and more digital-savvy clients without added regulatory burden.
What is tokenisation?
Tokenisation involves digitally recording ownership of assets, such as fund units, on DLT—a secure, shared digital ledger that updates records simultaneously across multiple locations. This is distinct from unregulated cryptoassets; tokenised funds stay firmly within the FCA’s authorised framework, simply updating the underlying technology for better efficiency. CP25/28 describes a gradual progression:
Tokenised Funds: Recording unit ownership and transactions on DLT for real-time accuracy.
Tokenised Assets: Enabling funds to hold digital versions of traditional securities, like bonds or gilts.
Tokenised Cashflows: Supporting automated payments and instant settlements using digital equivalents of cash. This structured path enables managers to adopt changes incrementally, ensuring stability. For readers in asset management, understanding this means recognising opportunities to reduce manual processes and errors, ultimately leading to more reliable services for clients.
What the FCA is proposing
CP25/28 introduces targeted measures to facilitate tokenisation, building on industry feedback and aligning with existing UK frameworks such as the Innovation Pathways and Digital Securities Sandbox (DSS). Here’s a breakdown:
Tokenised fund registers
Managers of authorised funds can now use DLT for unit-holder registers, including on public networks, as long as they maintain control to make corrections if needed. This guidance builds on the Blueprint model from the Asset Management Taskforce, offering the first explicit regulatory backing for such setups while ensuring compliance with existing rules on record-keeping and accessibility.
Direct-to-Fund (D2F) Model
This optional approach lets investors deal directly with the fund or its depositary, eliminating the traditional “manager’s box” intermediary. It simplifies processes, reduces risks related to holding client assets, as cash handled this way becomes part of the fund’s property, governed by standard fund rules.
Roadmap to full tokenisation
The FCA outlines future steps, including:
Using tMMFs as collateral in derivatives, leveraging current UK EMIR rules for transparency and efficiency.
Exploring stablecoins for settlements, with temporary options like sandboxes until full regulations are in place
Integrating with pilots like the Digital Gilt Instrument (DIGIT) through the DSS, allowing funds to invest in tokenised government securities. These proposals reflect a balanced view—observing industry needs while tying into broader UK fintech strategies. For asset managers, this framework means clearer paths to innovation, but it also underscores the need to evaluate how these changes fit existing operations.
Why the FCA is pushing this now
The consultation aligns with the FCA’s goals of fostering growth and competitiveness in UK asset management, which oversees £14.3 trillion in assets. Key drivers include:
Efficiency gains: DLT can cut down on data reconciliation and intermediaries, potentially lowering costs and speeding up settlements.
Evolving investor needs: Younger clients expect seamless, transparent digital experiences, similar to other online services.
International momentum: Projects like the EU’s DLT Pilot Regime and Singapore’s Project Guardian are advancing similar ideas, prompting the UK to keep pace through collaborations with bodies like the Monetary Authority of Singapore.
Market Resilience: Events like the 2022 gilt market turmoil highlighted benefits of real-time visibility and quicker liquidity. Overall, this positions the UK as a forward-thinking regulator that supports innovation responsibly. For asset managers, the takeaway, is a chance to gain a competitive edge globally—by adopting these tools, firms can attract more investors and operate with more flexibility, but only if they prepare thoughtfully for the transition.
Compliance and Risk Perspective
While tokenisation offers clear benefits, it also draws regulatory attention to ensure safe implementation. The FCA highlights several areas:
| Focus area | Regulatory consideration |
|---|---|
| Governance | Fitting DLT into current systems for oversight and risk management, with managers keeping full control over records. |
| Consumer protection | Ensuring accurate information and clear explanations, so investors understand without needing technical expertise. |
| Operational resilience | Planning for potential issues like system disruptions or third-party risks, including secure data handling and backup procedures. |
Firms will need to show strong audit processes, privacy measures, and response plans for incidents. On public networks, this might involve external reviews of automated systems and participant vetting.
From a compliance viewpoint, this means asset managers gain by proactively addressing these—turning potential challenges into strengths that build trust and reduce long-term risks.
Implications for asset managers and fintechs
For asset managers, CP25/28 could transform day-to-day operations by simplifying record-keeping, speeding up transactions, and cutting overheads—potentially passing savings to investors and improving returns. It also enables broader distribution through digital channels, appealing to a new generation of clients. Fintech providers stand to benefit by offering supporting tools for registries, verification, and monitoring. The D2F model, for instance, encourages a shift to more direct, efficient structures, aiding preparations for shorter settlement cycles like T+1. However, success depends on balancing innovation with core principles like investor safety and financial stability.
Global context and UK leadership
CP25/28 fits into a worldwide push for digital finance, enabling the UK to establish its position as one of the centres for regulated digital assets, attracting new investments and talent. For asset managers, it signals opportunities to expand internationally, but also the value of engaging in consultations to shape rules that work across borders.
How Braithwate can help
At Braithwate, we guide firms through regulatory shifts to unlock opportunities. Our team helps clients navigate innovation with confidence, offering deep expertise in licence applications, risk assessments, and cross-jurisdictional strategies. Through our FintechXpndr platform, we simplify compliance mapping and regulatory filings, ensuring full alignment with regulatory expectations.
If you’re considering tokenisation or submitting feedback to CP25/28, get in touch to see how we can accelerate your innovation and expansion roadmap.
