UK FCA Unveils Fund Tokenization Guidelines to Support Asset-Management Innovation

The UK Financial Conduct Authority has released guidelines on fund tokenization.

In a statement issued May 30, the FCA said the guidance is aimed at giving asset managers clear standards for using distributed ledger technology, or DLT, within the existing regulatory framework.

The policy also includes a structure designed to improve the efficiency of fund transactions. Most notably, it allows the optional use of a direct-to-fund, or D2F, model that lets investors transact directly with a fund. The model can be applied to both traditional and tokenized funds.

Fund tokenization refers to representing assets or ownership rights on blockchain-based infrastructure. The technology can lower costs and broaden access for investors.

Simon Walls, the FCA's executive director of markets, said tokenization has the potential to play an important role in the asset-management industry. He added that the regulator had focused on providing a practical and clear framework tailored to market demand, with standards that can be used now and in the future.

Jon Allen, head of innovation and operations at the Investment Association, said the guidance marked an important step in building confidence around the use of public blockchains and digital cash tools. Alongside the introduction of D2F, he added, it will strengthen the foundation for asset managers to carry out innovation strategies.

The FCA sees tokenization as a key growth driver in the UK market, where about 2,600 asset managers oversee 16.5 trillion pounds. The policy forms part of its digital assets roadmap and also outlines the future direction of fund tokenization.