The UK Financial Conduct Authority has finalized rules allowing asset managers to use distributed ledger technology for authorized funds, marking the first time a major European regulator has embedded tokenized fund operations into its existing regulatory framework rather than confining them to a sandbox.
The rules, published in policy statement PS26/7, came into force on 30 April 2026. They confirm that fund managers can tokenize units in authorized funds under current FCA rules without needing a separate regulatory regime.
The FCA received 64 responses to its earlier consultation paper CP25/28, first proposed on 14 October 2025. Respondents almost universally supported the regulator’s approach to accelerating fund tokenization.
Tokenized funds are investment vehicles whose ownership units are recorded on a distributed ledger instead of, or alongside, traditional registries. The shift allows for faster settlement, programmable compliance, and more transparent record-keeping.
What the FCA’s new framework allows
The most significant structural change is an optional Direct to Fund (D2F) dealing model. Under D2F, investors can deal directly with the fund itself, bypassing intermediaries, whether the fund uses traditional infrastructure or blockchain-based systems.
The FCA also confirmed that on-chain transaction records may serve as the primary books and records for unit deals. Firms do not need to maintain a full off-chain mirror, provided they have appropriate resiliency plans in place.
The UK asset management sector includes around 2,600 firms managing assets for domestic and global clients.
Those firms collectively manage £16.5 trillion for UK and global clients, underscoring the scale of the market the new rules address.
Why the new rules matter for firms and investors
For asset managers, the D2F model removes a layer of intermediation that has historically added cost and settlement delay. Firms that adopt tokenized structures can offer investors more direct access to fund units while staying within the FCA’s compliance perimeter.
The decision to allow on-chain records as primary books, rather than requiring parallel off-chain ledgers, reduces operational overhead. Firms still need resiliency plans, but the regulator has dropped an earlier proposal that would have required unattributable payments to be moved into a client-money account, replacing it with enhanced reconciliation rules instead.
The move arrives as stablecoin-linked yield funds gain traction across the broader digital asset industry. The FCA’s framework could give UK-domiciled managers a clearer path to launch similar products under a recognized regulatory structure.
FCA Chair John Allan called the policy statement a meaningful advance in the UK’s approach.
“This milestone represents a meaningful advance in the UK’s approach.”
— John Allan, FCA Chair (FCA press release)
For investors, the practical benefit is indirect but significant. Tokenized fund structures can enable near-instant settlement and continuous transparency into fund holdings, advantages that traditional fund infrastructure has struggled to deliver.
What this signals for the UK’s broader tokenization push
The FCA’s choice to embed tokenized funds within existing rules, rather than creating a parallel sandbox regime, signals regulatory confidence in the technology’s maturity. It also positions the UK ahead of the EU, where tokenized fund regulation remains fragmented across member states.
The regulator has flagged that broader stablecoin standards for fund settlement are expected by October 2027. That timeline suggests the FCA views the current PS26/7 framework as a foundation, not a final state.
Asset managers exploring tokenization will need to evaluate whether D2F dealing suits their distribution model and whether their technology providers can meet the FCA’s resiliency requirements for on-chain record-keeping. Firms active in cross-border stablecoin payment infrastructure may find natural synergies with the new framework.
The question of whether infrastructure capacity can keep pace with regulatory ambition remains open. The FCA’s rules are permissive, but adoption will depend on whether firms judge the operational and technical costs worthwhile given current market conditions.
The next concrete watchpoint is the FCA’s stablecoin settlement standards, expected in October 2027, which will determine how tokenized fund transactions settle at the payment layer.
Disclaimer: This article is for informational purposes only and does not constitute financial or investment advice. Cryptocurrency and digital asset markets carry significant risk. Always do your own research before making decisions.
