UK Regulator Paves Way for Tokenized Funds with New Guidance

The UK's Financial Conduct Authority has taken a significant step towards integrating distributed ledger technology into traditional asset management by introducing new guidance on tokenized funds.

The guidance removes uncertainty around how tokenization fits into current frameworks, allowing firms to use blockchain infrastructure within existing rules. This is expected to make it easier for asset managers to adopt tokenization without requiring a complete overhaul of regulatory structures.

One key aspect of the update is the introduction of an optional Direct-to-Fund dealing model, which enables investors to transact directly with a fund rather than through intermediaries. This streamlined process could improve efficiency and better support tokenized fund structures, particularly where on-chain settlement is involved.

The FCA has also provided regulatory clarity around the use of DLT records and public networks, confirming that firms can maintain fund records on blockchain systems as long as appropriate controls are in place. In some cases, on-chain records may serve as the primary books and records for fund transactions, reducing the need for full off-chain duplication.

The guidance is seen as a positive development for the UK's asset management sector, which oversees around £16.5 trillion in assets. The FCA emphasized that its approach is designed to support innovation while maintaining existing standards for investor protection and market integrity.