The Financial Conduct Authority (FCA) has set out plans to support tokenisation in order to to drive innovation, competition and growth in asset management.
Tokenisation – the process of recording ownership of assets on a blockchain – could lower fund administration costs, improve transparency, and open up access to private markets, the FCA said.
The plans include guidance to provide firms with additional clarity to aid adoption of this new technology.
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The FCA said it is committed to supporting innovation that helps the UK cement its place as a leading asset management hub.
Currently, it has around 2,600 firms managing £14trn of assets for UK and global clients.
The regulator said that, as the way people invest changes in the future, tokenisation can help asset managers to innovate and stay competitive.
It added that tokenised products could drive competition and increase choice for consumers and open up new ways to distribute funds, including to those new to investing.
Tokenisation also has the potential to broaden access to private markets and infrastructure investment and ultimately help consumers access more cost-effective and personalised investments, according to the regulator.
It offers further opportunities to improve efficiencies and reduce the costs of fund management, for example, by lowering the costs of sharing and reconciling data between firms involved in operating or distributing the fund.
The FCA has been actively working with industry to deliver these benefits for asset managers in the UK.
Simon Walls, executive director of markets at the FCA, said: “Tokenisation has the potential to drive fundamental changes in asset management, with benefits for the industry and consumers.
“There are many things that firms can do under our existing rules and more that become possible with the changes we propose enacting now.
“We stand ready to design the next stage with the industry – this publication suggests a path. The UK has the opportunity to be a world-leader here and we want to provide asset managers with the clarity and confidence they need to deliver.”
The FCA’s proposals include:
• Guidance on operating tokenised fund registers under current FCA rules through the UK Blueprint model.
• A streamlined, alternative dealing model for fund managers to process buying and selling of units in authorised funds, whether traditional or tokenised.
• A roadmap to advance fund tokenisation and address key barriers like using public blockchains and settling transactions entirely on the blockchain.
• A discussion on how tokenisation models could evolve and how regulation may need to change.
John Allan, head of the innovation and operations unit at the Investment Association, described the proposals as a “very welcome and potentially transformational move to accelerate tokenisation and efficiency in the UK fund market”.
He added: “The FCA’s proposals – embracing public chains, the use of stablecoin, and introducing Direct2Fund – signal a clear shift in thinking and confirms its stance as a tech positive, innovation-supporting regulator.
“We look forward to continuing the co-creation of a tokenisation regulatory framework with FCA for a new version of the fund – Investment Fund 3.0 – that is customer focused and able to adapt to future developments in digital markets.”
Rahul Bhushan, global head of investment products at ARK Invest Europe said: “We have seen blockchain as a key innovation theme for many years and we believe tokenisation has the potential to streamline operations, reduce costs, and widen access to investment opportunities, making asset management more efficient across the value chain.
“Blockchain-based instruments, including stablecoins, can modernise settlement and broaden access in a responsible way, which aligns with the FCA’s roadmap.
“However, successful adoption depends on clear regulatory alignment and responsible implementation to ensure transparency, interoperability, and investor confidence.”
Jesse Knutson, head of Operations at Bitfinex Securities, described the transition to tokenisation is a “generational opportunity for the asset management industry.”
He added: “Tokenisation sets a lower barrier to entry for would-be investors. Many investors can participate in fundraises that would previously only be available to institutional investors.
“It democratises access to capital, which is not only transformative for investors but also institutions and managers.”
Allan Trimmer, head of alternatives product at Aberdeen, said: “As an early adopter of tokenisation, Aberdeen is hugely supportive of the FCA’s intention to add clarity to the use of fund tokenisation helping support innovation while protecting consumers.
“The consultation covers a number of areas that are critical to maintaining progress around tokenisation within asset management, including the need for standardisation around the issuance and use of tokens, exploring the use of stable coins to drive greater speed and efficiency of transactions and examining the forward looking stages of tokenisation which have the potential to shape the end-to-end Investment Management lifecycle of the future.”
Lisa Lee Lewis, partner at international law firm Addleshaw Goddard said: “The FCA’s move to support tokenised funds and proposals to include a roadmap and guidance to address key issues is a positive and much needed step towards driving innovation and growth in the UK’s asset management landscape.”
