The UK’s financial regulator has started a new chapter in its relationship with digital finance. The Financial Conduct Authority (FCA) has approved the introduction of tokenised investment funds. This bold move aims to modernize the asset management industry, lower entry barriers, and attract younger, tech-savvy investors who prefer transparency, efficiency, and blockchain-based innovation.
FCA Opens the Door to Tokenisation
The FCA announced its support for tokenised funds during a recent press briefing in London. The regulator said it wants to “modernize the UK’s fund landscape” and ensure the country remains competitive in global finance.
Tokenised funds use blockchain technology to represent traditional fund units as digital tokens. Each token reflects a share of the fund, just like a traditional unit, but it trades and transfers through distributed ledger technology (DLT). This system removes many layers of intermediaries, reduces settlement time, and cuts costs for both fund managers and investors.
The FCA said it would start with a “first wave” of authorized tokenised funds under existing fund structures such as the Open-Ended Investment Company (OEIC) model. The funds will continue to hold traditional assets like equities and bonds, but the ownership records will exist on blockchain instead of centralized registries.
Why the FCA Supports Tokenisation
The regulator’s interest in tokenisation comes from two pressing realities. First, the UK wants to remain a leader in global asset management. Second, investors, especially those under 40, demand more transparency, faster transactions, and lower fees.
Sarah Pritchard, the FCA’s Executive Director for Markets, said during the announcement, “Young investors live in a digital world. They expect financial products that feel as intuitive as the apps on their phones.”
The FCA believes blockchain technology can deliver that experience. Tokenisation reduces paperwork, eliminates delays in settlement, and makes fractional ownership possible. For instance, a young investor could buy a small portion of a fund using digital tokens instead of meeting a large minimum investment threshold.
The FCA wants to create a fair environment where innovation thrives without compromising investor protection. It plans to collaborate with asset managers, fintech firms, and custodians to ensure that tokenised funds operate safely within existing rules.
A Push for Efficiency in Asset Management
The UK’s fund industry manages over £8.8 trillion in assets. Yet, it still relies heavily on decades-old infrastructure that struggles with inefficiency. Settlement can take several days, reconciliation processes involve multiple intermediaries, and transparency often remains limited.
The FCA wants tokenisation to solve these problems. Blockchain can record every transaction instantly and permanently, allowing fund managers to verify ownership and activity in real time.
Large asset managers such as BlackRock, Schroders, and Fidelity International have already started pilot projects involving tokenised assets. The FCA now provides them with a legal framework to scale these initiatives within the UK market.
Blockchain-based recordkeeping can also reduce administrative costs. Fund houses can automate back-office operations like share issuance, redemptions, and reporting. Lower costs can translate into lower management fees for investors, making funds more attractive in a price-sensitive market.
Younger Investors Drive the Change
The FCA’s decision clearly targets younger generations who prefer digital assets over traditional ones. Surveys show that more than 60 percent of UK investors under 35 hold some form of cryptocurrency or digital asset. Many of them distrust traditional financial systems but embrace transparent and borderless blockchain solutions.
By approving tokenised funds, the FCA bridges that gap. It allows young investors to participate in regulated, diversified funds while still enjoying the technological advantages of blockchain.
Tokenisation also aligns with the growing interest in fractional ownership. A university graduate can now invest £100 in a tokenised version of a major equity fund instead of saving thousands to meet old-school minimum requirements. This inclusivity can bring millions of new participants into the formal investment ecosystem.
Industry Response and Market Excitement
The asset management industry greeted the FCA’s announcement with enthusiasm. The Investment Association (IA), which represents over 250 fund houses, called the move “a turning point for the UK’s competitiveness.”
Chris Cummings, CEO of the IA, said, “Tokenisation modernizes our industry. It helps us meet the next generation of investors where they already live — online and on-chain.”
Several major fund managers already plan to apply for tokenised fund authorizations in the next few months. BlackRock’s UK division confirmed its intention to launch a tokenised version of one of its ESG funds by mid-2026. Schroders and Abrdn also expressed interest in experimenting with DLT-based fund administration.
Fintech startups have shown equal excitement. London-based blockchain infrastructure firm FNZ Chain said it would support fund managers by providing a “plug-and-play” tokenisation platform that complies with FCA standards.
Maintaining Investor Protection
While the FCA promotes innovation, it keeps investor safety at the forefront. The regulator emphasized that tokenised funds must follow the same rules as conventional funds regarding disclosures, asset valuation, and risk management.
The FCA also stressed that tokenisation doesn’t mean funds will hold crypto assets. The first phase focuses on traditional securities. However, blockchain will streamline the fund’s internal operations and make investor records transparent and immutable.
The regulator will monitor the early tokenised funds closely. It wants to evaluate how blockchain impacts liquidity, cybersecurity, and investor behavior. The FCA will adjust rules if necessary to address emerging risks.
A Step Toward the Digital Future
Tokenisation fits perfectly into the UK government’s broader “Digital Securities Sandbox” initiative. This program encourages financial institutions to experiment with blockchain in a controlled environment. The Bank of England also participates, exploring how digital ledger technology can improve settlement systems.
By aligning regulatory policies with innovation, the UK sends a strong signal to global investors: it intends to lead the next era of financial modernization.
Countries such as Singapore, Switzerland, and Hong Kong already run tokenisation pilots. The FCA’s approval puts the UK back in the global spotlight after Brexit reduced its influence in European finance.
Challenges Ahead
Despite optimism, tokenised funds will face several challenges. Integration with legacy systems remains difficult. Many asset managers still depend on decades-old software that cannot easily communicate with blockchain platforms.
Cybersecurity also poses a major concern. Blockchain can record data immutably, but fund managers must secure private keys and prevent unauthorized access.
Another challenge involves education. Many investors still misunderstand tokenisation and confuse it with cryptocurrencies. Fund houses must explain that tokenised funds remain regulated, hold traditional assets, and comply with the same oversight as other funds.
Finally, secondary market liquidity will take time to develop. Tokenised fund units can theoretically trade on digital exchanges, but real-world adoption depends on infrastructure, custody solutions, and investor demand.
A New Financial Era Begins
The FCA’s green light for tokenised funds marks one of the most important regulatory milestones of 2025. The decision blends tradition with technology and shows how a forward-thinking regulator can modernize finance without losing control.
By empowering tokenisation, the FCA invites innovation, competition, and inclusivity. Younger investors gain easier access to regulated products, fund managers gain efficiency, and the UK strengthens its reputation as a hub for digital finance.
As this initiative grows, London could once again become the center of global financial evolution — not through the trading floors of the past, but through transparent, secure, blockchain-powered systems that define the future of investing.
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