UK FCA Unveils Rules for Blockchain-Based Tokenized Funds

The Financial Conduct Authority has introduced a new regulatory framework designed to support the integration of blockchain technology into traditional asset management structures. The policy update, released under statement PS26/7, outlines how tokenized investment funds can operate within existing regulatory systems rather than under separate experimental arrangements.

The move represents a significant step in the United Kingdom’s broader effort to modernize financial infrastructure and encourage blockchain adoption within regulated financial markets. Under the updated rules, tokenized funds will now be permitted to function within established market structures while remaining subject to investor protection and oversight standards.

The FCA stated that distributed ledger technology and tokenization could improve operational efficiency across the asset management industry by streamlining record-keeping processes and increasing transparency. The regulator also emphasized its intention to support innovation without weakening existing safeguards designed to protect investors and maintain market integrity.

The FCA’s new framework officially allows tokenized funds to operate within the UK’s mainstream regulatory structure, marking a major step toward institutional blockchain adoption in asset management.

Blockchain Records Approved for Fund Operations

One of the most important changes introduced under the framework is the approval for firms to maintain investor records directly on distributed ledger systems using the industry-standard Blueprint model. This structure allows on-chain transaction records to serve as the official books for unit transactions without requiring duplicate off-chain records, provided firms maintain sufficient resiliency and security measures.

The Blueprint model has already been used in the authorization of the first tokenized UK UCITS fund structure, demonstrating practical implementation within regulated investment markets. UCITS structures are widely used in the mutual fund industry and are considered a core component of European investment products.

Under the revised rules, authorized investment funds may also maintain their investor registers on public blockchain networks as long as they comply with FCA standards for transparency, operational security, and investor protection. This would allow funds to issue units across multiple blockchain ecosystems while maintaining consistent fee structures and investor rights.

Industry analysts suggested that these changes could significantly reduce operational complexity in fund administration while improving efficiency in settlement and transaction management. Blockchain-based record systems may also help reduce reconciliation requirements and streamline reporting processes for financial institutions.

Direct-to-Fund Model Introduced

The FCA has additionally introduced an optional Direct-to-Fund, or D2F, operating structure. Under this framework, the fund or its depositary acts directly as the counterparty to investor trades instead of relying on asset managers to facilitate the process.

This structure is intended to simplify operational workflows by allowing fund units to be issued or canceled directly against cash transferred between investors and the fund itself. Regulators believe the approach aligns more effectively with blockchain-based settlement systems and could improve transaction efficiency.

The optional Direct-to-Fund model simplifies fund transactions by allowing direct settlement between investors and funds through blockchain-compatible processes.

Simon Walls, executive director of markets at the FCA, indicated that tokenization is expected to play an increasingly important role in the future of asset management. He suggested that the regulator’s objective is to provide firms with sufficient clarity and confidence to explore blockchain technology within a regulated environment.

The FCA’s blockchain initiatives form part of the UK government’s broader digital assets roadmap, first outlined in early 2025. The roadmap seeks to position the United Kingdom as a leading jurisdiction for blockchain innovation and digital asset regulation.

Future Expansion Could Include Stablecoins and Smart Contracts

Looking ahead, the FCA has signaled interest in expanding tokenization frameworks beyond investment funds into broader financial applications. The regulator is exploring the potential use of smart contracts to manage investment activity directly through digital wallets and is also considering wider applications involving tokenized cash flows.

The FCA indicated that it remains open to granting waivers permitting investment funds to use digital cash and stablecoins for settlements and operational expenses. These developments could support broader blockchain integration across wholesale financial markets and institutional trading infrastructure.

The regulator is also exploring future support for stablecoin settlements, smart contract-based investment management, and expanded blockchain adoption across UK financial markets.

The policy announcement follows the FCA’s recent consultation on a broader cryptoasset regulatory framework covering stablecoin issuance, custody services, trading operations, and staking activities. The regulator plans to continue gathering industry feedback through 2026 and aims to complete a comprehensive digital asset regulatory framework by October 2027.

As blockchain technology gains traction within institutional finance, the FCA’s latest guidance signals growing regulatory confidence in tokenized financial products and their role in the future evolution of global asset management.

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