FCA progressing fund tokenisation (CP25/28): game changer

(estimated 3 minute read)

Key takeaways:

• Game changing Financial Conduct Authority (FCA) fund tokenisation consultation paper.
• FCA is proactive and technology positive.
• Proposed guidance to accelerate funds tokenisation under existing rules.
• Proposed new streamlined 'direct to fund' (D2F) model.
• Road map to advance fund tokenisation and address barriers.
• Final regulatory requirements expected H1 2026.

Progress

Tokenisation is scaling rapidly. Deutsche Bank conservatively estimates that the tokenised real-world assets market (excluding stablecoins) could reach USD1.5-2 trillion by 2030, and USD3-4 trillion by 2035. Regulation has been identified by Deutsche Bank, and also others, as the biggest barrier to tokenisation adoption. 

Funds are a natural tokenisation use-case. The UK's asset management industry is the largest in Europe and the second largest globally. 

Recognising the enormous potential, Progressing fund tokenisation is the FCA's clearest articulation yet of its of technology positive stance. In fact, 'progress' greatly underplays the paper's importance - specifically in terms of funds tokenisation and generally in terms of FCA digital asset regulation.

Recap

As the FCA notes, tokenisation is seen as a key component of future financial services. To recap, tokenisation is the process of representing an interest in asset ownership on a blockchain. A blockchain is a type of distributed ledger technology (DLT), in a simple terms a digital store of structured data.

CP25/28 recognises the many advantages of DLT. For example, increased speed, process efficiencies and cost reductions, improved reconciliation-free records, additional asset classes with broader access, new distribution channels, reduced intermediation and increased competition. The FCA quotes estimated USD135 billion aggregate savings for the UK, EU and US fund industry.

DLT has downsides too, including cyber and technology risks, and also potentially market stability risks (see for example BIS' The rise of tokenised money market funds). As the consultation paper notes, the risks need to be identified and addressed.

For a more detailed digital assets overview, see Ashurst's Digital Assets 101.

Why this really matters

The FCA recognises that the UK's regulatory environment inhibits innovation by not allowing funds tokenisation. It also recognises that improving market efficiency will likely enhance economic productivity and make the UK more internationally competitive. There will also be wider positive spillovers, for example assisting a more general take up of tokenisation.

By allowing funds flexibility to operate in the most efficient way, the FCA aspires to make the UK a tokenisation centre of excellence. The FCA seeks to be a smarter regulator, supporting UK economic growth, enabling innovation, embracing new technology and reducing the regulatory burden. At the same time, the FCA emphasises that the proposals will not be at the expense of its core objectives, including consumer protection and market integrity.

There is still much regulatory work to be done, and CP25/28 is a consultation paper, necessarily containing suggestions, ideas and proposals. And UK financial services regulators are on a regulatory journey, including through their 2023 secondary international competitiveness and growth objectives, and the UK Government's focus on regulators enabling economic growth.

2025 is a pivotal year for digital asset markets, and there is fierce competition between international jurisdictions. CP25/28 really matters because the FCA sees tokenisation as a crucial structural upgrade to financial rails, not simply as a speculative overlay. A view now being echoed in other jurisdictions (for example the EU). We read in the consultation paper text, and also between the lines, a refreshed and dynamic FCA approach to meet this keen and evolving challenge. For example, being technology positive (rather than neutral), flexible, prioritising change and proactively supporting and exploring the development of new models.

"Accelerating tokenisation.."

UK Fund Tokenisation - A Blueprint for Implementation (the 'Blueprint model') explains to what extent existing UK regulation permits tokenisation. Whilst dealing in fund units can take place through blockchain-based records, the cash-leg remains off-chain for now. The FCA authorised the first Blueprint model tokenised UK fund in January 2025. In another important regulatory first, in response to feedback and questions, the FCA proposes interpretative guidance of its Handbook in order to provide greater clarity and confidence to adopt funds tokenisation. 

When the Blueprint model was introduced, it was assumed that private-permissioned blockchains would be used. Private/ permissioned versus public/ permissionless blockchains is a current hot topic, most notably the Joint Trades' H2 2025 letter to the Basel Committee on Banking Supervision (BCBS). The FCA recognises (as the BCBS now does too), that the DLT ecosystem, and state of the art, has moved on. Firms can use public blockchains provided that they comply with applicable rules and all relevant risks are addressed.

Direct to fund (D2F)

The consultation paper proposes a new model where investors deal directly with the fund rather than, as now, via an authorised fund manager (AFM). D2F would remove interim exposure to the AFM during the dealing process, remove significant operational overheads and make operational practice more efficient. D2F is also consistent with practice in other fund domiciles and will allow UK firms and service providers to more easily apply global operating models.

Direct dealing funds would be an optional alternative process, firms could instead continue to use existing models.

Road map

The road map covers a number of themes to advance fund tokenisation regulation. For example, the current lack of a universally accepted cash-leg solution is a material impediment to fully on-chain digital assets transactions, including fully on-chain funds. The consultation paper posits a number of interim stop-gaps, including rule waivers or modifications, and using a regulatory sandbox. It also outlines possible criteria for settlement using stablecoins.

Future tokenisation models

CP25/28 explores future tokenisation models put forward by industry. Whilst the FCA does not endorse any particular vision, and acknowledges that its role is not to shape future markets, it proactively invites views on what role it should play and how regulation needs to evolve to support future visions. It notes that certain elements of future models may allow the FCA to take a more proportionate and less prescriptive approach (subject, of course, to the FCA meeting its overarching regulatory objectives).

What's next?

Fund tokenisation on distributed ledger technology is a once in a generation opportunity. Whilst CP25/28's technical detail is important, the consultation paper really matters because of the FCA's direction of travel and intended cadence.

2025 is a pivotal year for DLT. The consultation paper has the potential to be an inflection point for UK tokenisation regulation; to be catalytic rather than merely permissive.

Final regulatory requirements are expected in H1 2026.