UK regulator greenlights blockchain use in funds

TLDR

The UK Financial Conduct Authority has formally allowed regulated investment funds to use blockchain for core operations, opening the door to fully tokenized funds under existing rules.

1. The FCAs policy statement PS26/7 lets authorized funds keep investor registers on blockchain using the industry Blueprint model and recognizes onchain records as primary books.
2. The rules enable tokenized UK UCITS and introduce a Direct-to-Fund dealing model, which can streamline issuance, redemptions, and onchain settlement without weakening investor protections.
3. Next steps include which chains and stablecoins managers adopt, how many tokenized funds launch, and how this fits into a broader UK crypto regime due by 2027.

Deep Dive

1. What The FCA Has Approved

The FCA has published new rules and guidance in policy statement PS26/7 that allow tokenized funds to operate inside the existing authorized fund regime, rather than in special sandboxes or pilots. The rules confirm that authorized funds, including UCITS, can maintain unitholder registers on distributed ledger technology and use the industry Blueprint model so that onchain transaction records can serve as the primary books for unit deals if resilience controls are in place. The FCA also allows registers to sit on public blockchains and even across multiple networks, as long as investors rights and charges are identical and governance, data privacy, and financial crime standards are met, as outlined in the updated Blueprint guidance.

This framework has already been used to authorize the first tokenized UK UCITS, with onchain registers recognized as legally valid under the FCAs existing fund rules. A separate summary highlights that this is part of a wider FCA digital-assets roadmap to modernize the UKs market infrastructure while keeping investor protections intact through the current regulatory perimeter, not a relaxed one, as described in the FCA-focused community analysis.

2. How This Changes Funds And Crypto

A key innovation is the optional Direct-to-Fund dealing model, where the fund or its depositary, rather than the manager, becomes the counterparty to investors, allowing units to be issued or cancelled directly against cash in a single step. This model aligns naturally with onchain settlement, since it reduces intermediaries and fits tokenized units and programmable cash into a cleaner operational flow, potentially cutting settlement times and operational risk.

The FCA explicitly maps a progression from tokenized funds to tokenized assets and ultimately tokenized cash flows, including scenarios where investors hold tokenized units in digital wallets and managers use smart contracts for portfolio management. It is also open to waivers so funds can use digital cash and stablecoins for settlement before a full UK cryptoasset and stablecoin regime starts around October 2027, which points toward regulated use of stablecoin rails rather than unregulated DeFi routes.

3. What To Watch Next

First, watch which UK or global asset managers actually launch tokenized UCITS or other authorized funds and which blockchains they choose, since that will signal where institutional-grade tokenization liquidity may cluster. Second, monitor whether FCA grants waivers for using specific stablecoins or tokenized bank money in fund settlement, and how that interacts with future UK stablecoin rules and the wider 2027 cryptoasset framework.

Finally, this move places the UK in the same broad trajectory as other tokenization hubs like Luxembourg and Gibraltar, which are also recognizing tokenized fund structures, so competitive pressure could drive more experimentation with tokenized Treasurys, money market funds, and collateral uses tied to major exchanges and custodians.

Confidence: high, based on FCA policy PS26/7 and multiple independent reports on tokenized funds.

Conclusion

The UK has not suddenly deregulated crypto, but it has invited blockchain into the core plumbing of its regulated funds industry. By letting tokenized funds operate under standard rules and testing direct-to-fund and digital-cash models, the FCA is building a regulated path for onchain funds, tokenized assets, and eventually tokenized cash. The opportunity for crypto markets lies in becoming the infrastructure layer these tokenized products run on, provided they meet the FCAs strict governance, AML, and resilience expectations.