Europe: UK FCA Looks to Accelerate Fund Tokenisation and Direct Dealing
By: Andrew J. Massey, Kai Zhang, and Zainab Kuku
The FCA has published Consultation Paper CP25/28 with a view to accelerating the adoption of tokenisation by UK authorised funds. The consultation also proposes changes to allow direct dealing models, which would facilitate tokenisation as well as improve the operating environment for UK authorised funds generally.
The consultation sets out a broader vision for the tokenisation of portfolio management. It describes not just the tokenisation of fund interests, but also the tokenisation of assets in a way that would make it viable for investors to hold assets directly without the complexity and expenses of an intermediate fund.
The more immediately relevant aspects of CP25/28 are the confirmation that UK authorised fund tokenisation is permissible under the current law, and the FCA’s proposed guidance on how distributed ledger technology (DLT) might be used, which includes:
- Confirmation that the firm responsible for maintaining a DLT register must be able to make unilateral changes to the register, and suggesting different approaches to achieve this;
- Clarifying that firms must be able to aggregate information on the DLT register in order to identify the total units held by an investor; and
- Emphasizing the need to ensure compliance with anti-money laundering requirements even when investors may transfer tokenized units to third parties, and proposing approaches.
The proposed changes to introduce direct dealing for UK authorised funds are equally welcome. The current arrangement in the United Kingdom, where investors buy shares from and sell shares to the AFM, is not consistent with other major fund jurisdictions and creates operational complexity. Whilst direct to fund dealing is currently permissible, the FCA sees benefit in prescribing requirements around how this should work in practice, including requiring the maintenance of an Issues and Cancellations (IAC) Account.
Final rules and guidance are expected in the first half of 2026.