CP25/28: Fund Tokenisation - A Few Steps Closer

On 14 October 2025, the FCA published a consultation paper on progressing fund tokenisation (CP25/28).The consultation is the latest development in a series of steps taken by the FCA to support industry tokenisation initiatives in the UK, including its 2023 discussion paper, Updating and Improving the UK regime for Asset Management (DP23/2), and the commitment in its January 2025 letter to the Prime Minister to progress its roadmap for digital assets within asset management.

Quick read

In CP25/28, the FCA sets out its proposals to help the adoption of tokenisation and tokenised funds in the UK. The proposals include:

• Guidance for operating tokenised authorised funds under the "Blueprint model".
• Rules and guidance for an alternative, streamlined dealing model for conventional and tokenised authorised funds, referred to as 'direct to fund' (D2F).
• A roadmap to advance fund tokenisation and address key barriers.
• There is also a discussion chapter on future tokenisation models that use DLT to provide tokenised portfolio management at retail scale, and potential approaches to regulation in this area.

The deadline for comments on the consultation proposals is 21 November and the deadline for comments on the discussion topics is 12 December. The FCA plans to publish a policy statement with final rules in the first half of 2026.

The content of CP25/28 is detailed and technical. In this blog post we consider at a high level the key points for firms to take away.

Proposals

The FCA's proposals aim to give firms greater clarity and confidence to adopt tokenisation in fund management to improve operational efficiency and enhance the competitiveness of the UK as a global hub for asset management.

Additional guidance on the Blueprint model

• The "Blueprint model" refers to the model developed by the industry-led Technology Working Group (TWG) of the previous government's Asset Management Taskforce in its interim report (November 2023) on how firms can operate a tokenised unitholder register within the existing legal and regulatory frameworks.
• The FCA's proposed guidance confirms that:
  • whilst the Blueprint model anticipated a private-permissioned blockchain, firms may also use public networks, so long as they have the appropriate controls in place to meet the outcomes in the FCA's rules and comply with relevant regulations, such as data privacy;
  • operating a register under the Blueprint model would be consistent with requirements of the Collective Investment Schemes sourcebook (COLL) and the Open-ended Investment Companies Regulations (OEIC Regulations);
  • whilst managers must retain the ability to unilaterally update the register (per COLL and the OEIC Regulations), they can do so by using DLT functionality to 'burn' and 'mint' tokens or create subsequent records which 'unwind' incorrect entries or create new ones;
  • smart contracts and DLT can be used in eligibility verification, and managing network risks, such as outage events; and
  • UK authorised funds can invest in tokenised forms of eligible assets under existing investment and borrowing rules in COLL (the FCA anticipates that, in due course, this will include DIGIT (i.e. a UK Government debt instrument held on DLT)).

D2F dealing model

The consultation sets out proposed rules and guidance for an alternative, streamlined dealing model for authorised funds, known as "direct to fund" (D2F):

• Under D2F, unitholder deals would be affected through direct issue and cancellation of units in the fund, in exchange for settlement of cash directly between investors and the fund. This is different to the typical dealing model under which the fund manager deals as principal in unit transactions with investors, which exposes investors and the fund to interim exposure to the manager during the dealing process.
• Although the FCA's current rules do permit this dealing model, the FCA recognises that many of its rules are drafted on the basis of the fund manager dealing as principal and require amendment to make operational practice more efficient. The D2F model would also bring the UK into line with practice in other jurisdictions.

Roadmap to fund tokenisation

• The FCA is exploring how its rules and guidance can support the following priority use cases identified in the March 2024 report from the TWG, Further Fund Tokenisation:
  • fully on-chain investment markets, with tokenised funds investing in tokenised securities (such as fixed-income or other asset classes) that can operate with programmable ledgers for settlement; and
  • the use of Tokenised Money Market Fund (tMMF) units as collateral where eligible under the UK regime for non-centrally cleared derivative contracts.

Considerations for fully on-chain markets

• Gas fees.To facilitate fully on-chain funds, digital assets may need to be held to enable unit deals and distribution payments, and cryptoassets may need to be held to pay gas fees (which are similar to a transaction charge). Firms will need to consider whetherthis creates any licensing or registration requirements for them. The FCA asks firms to provide feedback on how this could work within their operating model. However, CP25/28 does not explore the holding of cryptoassets for investment purposes. At a future date, the FCA intends to conduct a broader review of the eligible assets regime for authorised funds and it indicates it will consider whether funds' ability to hold non-financial cryptoassets for investment could be part of this review.
• Settlement assets.To help support firms, before the UK regime for qualifying stablecoins is introduced (see our blog), the FCA is considering the operation of an "interim environment" for funds. This could involve the use of FCA sandboxes or rule waivers/modifications. It would allow firms to launch or test fully-on-chain authorised funds and then transition across to the new regime once it goes live.The FCA also considers firms' use of stablecoin as a settlement asset. It proposes that the features of such a stablecoin must be consistent with HM Treasury's proposed definition of "qualifying stablecoin". This definition is wider than UK-issued stablecoins. However, the FCA indicates that, once the UK regime is finalised, it intends to review whether UK-issued stablecoins would be "more appropriate" for these purposes.

MMF units as collateral

• In CP23/28,Updating the regime for Money Market Funds, the FCA explored the use of Money Market Funds (MMFs) for meeting margin calls and the potential offered by tokenisation.
• The FCA is seeking to support firms taking forward tokenised collateral initiatives (whether within or outside the Digital Securities Sandbox (DSS)), but it is aware that widespread adoption will depend on legal and regulatory certainty, including across jurisdictions, and that the tokenisation of MMFs and the use of tokens as collateral has the potential to create new risks in the financial system.
• This latter potential issue has previously been identified by the Bank of England's Financial Policy Committee; the FCA states that its future policy work will reflect the need to maintain strong prudential standards.

Future tokenisation models

• The FCA explores three future tokenisation models to provide tokenised portfolio management at retail scale. It is asking for firms' views on this approach, including on the potential benefits of 'composability' (broadly, this is reusing existing technological and operational components to develop new DLT applications and services).
• The first stage of development is the tokenisation of funds. The FCA states that it is supporting and enabling this through its proposals in CP25/28.
• The next stage is the tokenisation of assets, which the FCA envisages will involve the relationship between asset managers and their clients moving towards something similar to the way managed portfolios or discretionary investment management services are currently delivered. This could involve the use of programmable tokens and self-executing smart contracts that would allow consumers to hold tokenised assets in a digital wallet. The FCA also mentions the possibility of asset managers managing client holdings through "micro model portfolios" held in model portfolio smart contracts to meet the financial needs and objectives of similar groups of consumers. It sees "a degree of convergence" between adopting tokenisation, using model portfolios and the introduction of targeted support (see our blog for more information).
• The final 'end-state' stage is the tokenisation of cash flows. The FCA proposes a model under which an adviser creates "an actuarial-style lifestyle plan of current and future financial needs for an investor and assigns specific cash flow tokens to meet those needs, providing ongoing portfolio management of cash flows". As the FCA notes, this would make investing highly customisable to client needs.
• The FCA also discusses how to ensure its rulebook is fit for the future. Regulatory changes may be required to promote future fund tokenisation – e.g. the use of digital cash settlement instruments or money-like instruments (such as stablecoins) for unit deals. The FCA does not at this stage endorse any particular future vision and it welcomes views from firms on the role it should play and how its rulebook should evolve. As with other recent consultations, it sees this as a potential opportunity to take a more proportionate, less prescriptive approach, while maintaining high standards of consumer protection and market integrity.

Comment

In relation to both the consultation and the discussion elements of CP25/28, the FCA emphasises its "technology positive" and collaborative approach to developing its fund tokenisation proposals. Growth, competition, simplification, consumer choice, striking the right balance between innovation and consumer protection, and being a smarter regulator are - once again - recurring themes. It is also clear from the use of language in CP25/28 that the FCA is seeking to instil a sense of momentum and acceleration to bringing tokenisation into the mainstream and to giving firms greater clarity and confidence in this area.

The tone and overall direction of travel will certainly be welcomed by the industry, while recognising that certainty may be some way off. Despite its specific policy proposals, the FCA is still in thinking and listening mode about a number of areas referenced in CP25/28, having so far taken what it describes as "early positions" on them. The wider regulatory landscape will also be key, both domestically (for example, the PRA has not yet set out its proposed policy on implementing the Basel standard on banks' cryptoassets exposures), and internationally, where there is a focus on global regulatory and technical standards to address the financial stability implications of this developing area.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.