Fund Tokenisation: FCA Consults on Next Step Towards On-Chain Investment Funds

The FCA’s new consultation could reshape the future of authorised funds, laying the groundwork for tokenised, on-chain investment models powered by distributed ledger technology. Thistle’s Investments team explores the potential impact and next steps for firms.

The FCA has just released Consultation Paper 25/28, proposing new rules for fund tokenisation and direct-to-fund dealing for authorised funds.

Tokenisation is seen as a key component in the future of financial services as it uses distributed leger technology (DLT) which means details of transactions no longer need to be stored on a central database.

This means that fund management can become more efficient as the cost of reconciling and sharing data decreases because the firms operating and distributing the funds have the same information records.

The benefits of tokenisation include:

• Shorter settlement times
• Real-time portfolio transparency
• Easier facilitation of peer-to-peer transactions between verified accounts

Supporting this move, the FCA is also proposing a new direct dealing model that will allow a fund or its depositary to act as principal in unit deals with end investors instead of the authorised fund manager (AFM). This will give AFMs greater flexibility on the most efficient dealing model for a fund, its investors and distribution channels.

The FCA is also in favour of supporting the use of stablecoins and digital currencies to facilitate fully on-chain funds. This may include holding cryptoassets although these cannot be held for investment purposes – this will be reviewed in the future.

Proposed Updates to the FCA Handbook

The FCA proposes the following changes to the COLL Sourcebook:

• COLL will be updated to remove the requirement to deal as principal when unitholders are offered the ability to deal directly with the fund
• Controls on investor eligibility for authorised contractual schemes (ACS) will change
• COLL will be updated to allow new categories of assets for digital cash and money-like instruments for non-investment objectives

What This Means for Firms

The FCA’s fund tokenisation proposals form part of its broader ambition to modernise personalised portfolio management and integrate digital assets into mainstream finance. Future steps are expected to include tokenisation of underlying assets and cash flows. It is encouraging to see the regulator champion innovation while maintaining a strong focus on investor protection and market integrity.

How Thistle Initiatives Can Help

At Thistle Initiatives, we have a team of tokenisation, digital assets, and crypto experts who help firms understand and implement emerging technologies within a compliant, well-governed framework. We can help by:

• Planning and managing the transition to tokenised funds
• Updating existing policies and procedures to reflect changes to the FCA Handbook
• Reviewing and enhancing AML frameworks to ensure verified accounts remain compliant

If you’d like to discuss how we can support your firm, please contact us at info@thistleinitiatives.co.uk or call 020 7436 0630 to speak with a member of our team.

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